We, the undersigned economists,* write in support of sensible limits on the growth of government at the state and local level. Although there has been much debate on such efforts in the political sphere, a large body of academic research clearly shows that lower tax rates and modest growth in government spending help to promote greater economic expansion and job creation. Any state seeking long-term prosperity for its citizens should enact laws that will prevent the public sector from growing at a rate faster than the private sector can afford. An excellent and proven limit would consist of annual increases in inflation plus population, with overrides upon consent of the voters.
During good times as well as bad, many states increased government spending with reckless abandon. To pay for the irresponsible legacy they created, elected officials in these states have recently resorted to one-time influxes from the federal government's stimulus package and/or draconian tax increases. Even prior to the current economic slump, however, states have often trapped themselves in perpetually unstable budgetary patterns. Government consumes too much of the economy, in turn leading to less private-sector productivity, lower revenues, and bigger deficits – finally coming full circle to additional tax increases. Well-drafted tax and expenditure limitations restore predictability to fiscal policy, benefiting both public officials and citizens.
There is perhaps no better example of this pattern than the state of California. Between 2003 and 2007, the state's budget increased by 31 percent. Meanwhile, inflation during that period was only 12 percent and population growth was just 5 percent.[1] The legislature has had to convene two frantic sessions in the last eight months alone to close first a $42 billion budget deficit and later a $26 billion hole created by this spending binge. The budget deals raised California's already high income and sales taxes and resorted to several accounting gimmicks to bridge the gap. These moves are likely to worsen the economic climate in a state that already has the 6th-highest state and local tax burdens and the 3rd-worst business tax climate in the U.S., according to the Tax Foundation.[2]
Political considerations aside, rules still do matter in taxing and spending policy. Prudent limits, which allow governments to grow only by inflation and population unless voters say otherwise, are workable and flexible tools that prevent fiscal instability and promote economic health.
Sincerely,
The Undersigned
*Affiliations listed for identification purposes only.
Donald L. Alexander
Western Michigan University
Ryan C. Amacher
University of Texas at Arlington
George Averitt
Purdue University North Central
King Banaian
St. Cloud State University
Gerald Baumgardner
Pennsylvania College of Technology
Stacie Beck
University of Delaware
James T. Bennett
George Mason University
Doug Berg
Sam Houston State University
Scott C. Bradford
Brigham Young University
James L. Butkiewicz
University of Delaware
Noel D. Campbell
University of Central Arkansas
Dustin Chambers
Salisbury University
John S. Chipman
University of Minnesota
Lawrence R. Cima
John Carroll University
Douglas Coate
Rutgers University
Warren Coats
Retired, International Monetary Fund
John P. Cochran
Metropolitan State College of Denver
Lloyd Cohen
George Mason University
Robert A. Collinge
University of Texas at San Antonio
Mike Cosgrove
The Econoclast
Kirby R. Cundiff
Northeastern State University
Coldwell Daniel
University of Memphis
Ronnie H. Davis
Florida Institute of Technology
Joseph S. DeSalvo
University of South Florida
Jeffrey H. Dorfman
University of Georgia
Floyd H. Duncan
Virginia Military Institute
Stephen J. Entin
Institute for Research on the Economics of Taxation
Richard E. Ericson
East Carolina University
Dr. Fred G. Esposto
Kutztown University of Pennsylvania
Paul Evans
The Ohio State University
John A. Flanders
Central Methodist University
Arthur A Fleisher III
Metropolitan State College of Denver
Fred E. Foldvary
Santa Clara University
Michelle Michot Foss
The University of Texas at Austin
D. C. Frechtling
George Washington University
Dave Garthoff
The University of Akron
Micha Gisser
Rio Grande Foundation
Stephan F. Gohmann
University of Louisville
Rodolfo A. Gonzalez
San José State University
Peter Gordon
University of Southern California
Kenneth V. Greene
Binghamton University
Gerald Gunderson
Trinity College
Stephen Happel
Arizona State University
Kabir Hassan
The University of New Orleans
Robert Heidt
Indiana University Maurer School of Law
Robert Stanley Herren
North Dakota State University
P.J. Hill
Wheaton College
Mark Hirschey
University of Kansas
Bradley K. Hobbs
Florida Gulf Coast University
Charles L. Hooper
Hoover Institution
Doug Houston
University of Kansas
Andrei Illarionov
Cato Institute
Christopher R. Inama
Golden Gate University
Brian J. Jacobsen
Wisconsin Lutheran College
James L. Johnston
The Heartland Institute
Barry P. Keating
University of Notre Dame
Raymond J. Keating
Small Business & Entrepreneurship Council
Kristen Keith
The University of Toledo
Peter Kerr
Southeast Missouri State University
Robert Krol
California State University, Northridge
Kishore G. Kulkarni
Metropolitan State College of Denver
Michael M. Kurth
McNeese State University
Daniel L. Landau
University of Connecticut
Jody Lipford
Presbyterian College
Herbert London
Hudson Institute
Lawrence W. Lovik
Alabama Policy Institute
R. Ashley Lyman
University of Idaho
D.W. MacKenzie
The U.S. Coast Guard Academy
Michael L. Marlow
California Polytechnic State University
Roger Meiners
University of Texas at Arlington
Roy Miller
Miller Marketing & Management
David M. Mitchell
Missouri State University
Andrew P. Morriss
University of Illinois College of Law
Ronald M. Nate
Brigham Young University
Walton Padelford
Union University
Allen M. Parkman
University of New Mexico - Albuquerque
James D. Parrino
Babson College
Penn R. Pfiffner
Independence Institute
Joseph Pomykala
Towson University
Jeffrey Pontiff
Boston College
Barry W. Poulson
University of Colorado at Boulder
Reza Ramazani
Saint Michael's College
R. David Ranson
H. C. Wainwright & Co. Economics Inc.
Nancy H. Roberts
Arizona State University
Paul H. Rubin
Emory University
Thomas Carl Rustici
George Mason University
John Rutledge
Rutledge Capital LLC
Raymond D. Sauer
Clemson University
D. Eric Schansberg
Indiana University Southeast
Michael Schuyler
Institute for Research on the Economics of Taxation
Robert Haney Scott
California State University, Chico
John Semmens
Laissez Faire Institute
William F. Shughart II
University of Mississippi
James F. Smith
University of North Carolina at Chapel Hill
W. James Smith
University of Colorado at Denver
Dean Stansel
Florida Gulf Coast University
Craig A. Stephenson
Babson College
Courtenay C. Stone
Ball State University
Shirley Svorny
California State University, Northridge
Jason E. Taylor
Central Michigan University
Teresa Tharp
Valencia Community College
Leo Troy
Rutgers University-Newark
Robert Whaples
Wake Forest University
John H. Wicks
University of Montana
Gary Wolfram
Hillsdale College
Kate Zhou
University of Hawaii
Benjamin Zycher
Pacific Research Institute
[1] https://www.taxfoundation.org/research/show/24855.html
[2] https://www.taxfoundation.org/publications/show/25267.html