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Pennsylvania Needs a "Tax and
Expenditure Limitation"
(Commonwealth Foundation Report shows that economic growth occurs when taxes and
spending are constitutionally or statutorily limited)
HARRISBURG, PA - State leaders of both parties have failed to control
Pennsylvania's decades-long practice of boosting taxes and spending far above
the rates of inflation and population growth. Therefore, according to a new
Policy Brief released by The Commonwealth Foundation, it is time for the
Commonwealth to enact a "Tax and Expenditure Limitation" (TEL) with a
"super-majority" requirement to raise taxes.
"Pennsylvania's ongoing fiscal problems are the result of a series of executive
and legislative failures--by Republicans and Democrats alike--to limit the
growth of state taxes and spending," said Commonwealth Foundation Senior Policy
Analyst Grant R. Gulibon. "It's time to follow the lead of states that have
placed strict limits on the ability of politicians to tax and spend. There is
strong evidence that those states not only keep taxes and spending in check, but
economically outperform states with weaker or no such limits--states like
Pennsylvania."
The Commonwealth Foundation study notes that at the state level alone, overall
Pennsylvania total operating expenditures rose at a rate 182 percent faster than
the concurrent rates of inflation and population growth between 1971 and 2003.
This state spending growth was accompanied by the corresponding rapid growth of
local government spending, which (excluding intergovernmental expenditures) rose
91.5 percent faster than the concurrent rates of inflation and population growth
between 1992 and 2000.
Meanwhile, there is evidence that "Tax and Expenditure Limitation" (TEL) states
have experienced stronger fiscal discipline and more robust economic expansion
than states without them. For example:
* The five-year growth rate of per capita state spending in TEL states fell from
0.8 percentage points above the national average before enactment of the TEL to
2.9 percentage points below the national average after enactment of the TEL.
Absent the TEL, the average expenditure burden per family of four in those
states would have been $400 higher than it actually was five years after it was
enacted. Overall, state and local per capita spending growth in the TEL states
fell from 6.1 percent for the five-year period immediately prior to TEL
enactment to 2.4 percent in the five-year period after TEL enactment.
* Comparing the five-year periods immediately preceding and following enactment
of the TEL, the growth rate of per capita taxes in TEL states fell from 5.5
percentage points above the non-TEL state average to 12.5 percentage points
below the non-TEL state average. Absent the TEL, a family of four in one of the
TEL states would have faced a tax burden $650 higher than it actually was five
years after the TEL was enacted.
* Fourteen states currently have some form of a "supermajority" provision for
tax increases, with 10 of the 14 requiring at least a two-thirds affirmative
vote. During the 1990s, taxes and spending in states with "super-majority"
requirements rose 87 and 95 percent respectively, compared to respective
increases of 104 and 102 percent in states without them.
* Between 1995 and April 2003, the 14 states with some type of TEL (revenues,
expenditures/appropriations, or both) and/or super-majority provisions had an
overall employment growth rate of 14.1 percent, compared to 8.1 percent in the
36 other states (including Pennsylvania) and the District of Columbia (some of
which had appropriations/expenditure or revenue limitations, but not
super-majority requirements). During that time period, Pennsylvania's employment
growth rate was 6.8 percent. The 14 TEL and/or super-majority states'
employment growth rate was 107.4 percent higher than that of Pennsylvania.
* Between 1995 and 2001, the 14 states with some type of TEL (revenues,
expenditures/appropriations, or both) and/or super-majority provisions had a
gross state product (GSP) growth rate of 44.1 percent, compared to 36.3 percent
in the 36 other states (including Pennsylvania) and the District of Columbia
(some of which had appropriations/expenditure or revenue limitations, but not
super-majority requirements). During that time period, Pennsylvania's GSP growth
rate was 28.1 percent. The 14 TEL and/or super-majority states' GSP growth rate
was 56.9 percent higher than that of Pennsylvania.
"Enacting a TEL with a super-majority requirement to increase taxes would likely
help Pennsylvania improve its fiscal and economic situation, by allowing more
money to remain in the private sector, where it is available for investment and
job creation," concluded Gulibon. "By forcing government officials to set
spending priorities, eliminate non-core government functions, and improve the
efficiency and effectiveness of the programs that must remain, Pennsylvania can
once again become an economic leader in the United States."
The Policy Brief, The Case for a Pennsylvania "Tax and Expenditure Limitation,"
can be accessed at:
www.CommonwealthFoundation.org/Taxes/pb03-07.pdf.
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The Commonwealth Foundation is a free-market public policy research and
educational institute based in Harrisburg, Pa. For more information, visit
www.CommonwealthFoundation.org.
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