For almost a generation Ohio’s voters have been signaling a desire to reign in government taxation and spending. They have elected a succession of Republican governors and legislative majorities, and they have consistently voted down statewide tax and spend initiatives. Despite this, Ohio’s state and local governments continue to tax and spend at a pace that far outstrips inflation and population growth and even personal income growth. As a result, over the last few decades Ohio has gone from being a low tax, high growth state to being a high tax, low growth state.

Today we are releasing this report about the role and importance of Tax and Expenditure Limitations (a.k.a. TELs). TELs are rules that limit the ability of the government to tax and spend beyond the capacity of the citizens to pay.

Why do we need a rule limiting the ability to tax and spend? The simple answer is that the political process is broken. Voters demand lower taxes but politicians deliver higher taxes as they cater to special interest groups inside and outside of government. No doubt you will be hearing from many such groups over the coming weeks and months as we debate this issue. They will tell you that government budgets are tight and that a TEL would threaten the very existence of many necessary government services. Don’t believe them. The fact is that for years and years, the rate of taxation and spending growth has been 5+ percent per year. The people suffering most are Ohio’s taxpayers who continue to see larger and larger shares of their incomes going to taxes to feed the insatiable appetite of the special interests.

Ohio would not be alone in adopting a TEL. Some 23 states have TELs of one form or another, though they have been effective in only a few states. In our survey of the effectiveness of TELs we highlight three things that are a must if you want to have a TEL that actually works as a constraint on government taxation:

1. The TEL must be constitutional. Many states have attempted legislative TELs, but any rule created by the legislature is easily broken by the legislature. The TEL must be made constitutional so that politicians cannot break it with a simple majority.
2. The TEL must specifically limit the growth of spending to inflation plus population growth. This allows government spending to keep pace but not outpace our ability to pay. The limits should also be comprehensive applying to all taxes and spending types at all levels of government, state and local.
3. Surplus revenue, above and beyond the TEL limit, must be refunded to taxpayers in some manner. Rebate checks are one option but another is to use surplus revenue as a way to fundamentally reform the tax code—something politician have been talking about doing for years.

Some worry that TELs will create budget crises by limiting the state’s ability to raise taxes. On the contrary, we argue that TELs should reduce the severity of budget crises by preventing the overspending that is the root cause of many such crises. In any case, a TEL proposal can easily be combined with a proposal for a budget stabilization fund (‘rainy-day fund) to help offset the problem of a recessionary budget crunch.