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Press Release

    Tax & Expenditure Limitation

    10/17/2005

    A “Tax & Expenditure Limitation” (TEL) limits the annual growth in state government spending. The most common TELs cap the annual growth in government spending to the combined rates of population growth plus inflation. Tax revenues that exceed budgeted amounts are refunded to taxpayers and/or a combination of refunds and savings in a budget stabilization fund to help smooth future economic slowdowns. If lawmakers desire to keep any tax overpayments, they must receive voter approval at the ballot box. Proposals in Pennsylvania have, more or less, followed this format with a few exceptions.

    ECONOMIC GROWTH OR GOVERNMENT GROWTH?

    It has been said that you can have economic growth or you can have government growth. But you can't have both! Therefore, it is unsurprising that between 1991 and 2002—while Pennsylvania state government had the 5th-highest real per capita spending growth rate in the nation—the commonwealth was

    47th in job growth,
    48th in personal income growth, and
    48th in population growth.

    Governor Rendell has continued the government spending trend with increases in General Fund expenditures of nearly 19 percent since 2002. Between 2002 and 2004, Pennsylvania ranked

    38th in job growth,
    41st in personal income growth, and
    45th in population growth.

    COLORADO’S EXPERIENCE WITH “TABOR”

    Colorado’s experience with a tax and expenditure limitation suggests that Pennsylvania will experience robust economic growth in future years. Since Colorado’s enactment of its Taxpayer Bill of Rights (TABOR) in 1992, the Rocky Mountain State has refunded $800 in taxes per every man, woman, and child, and the state experienced one of the strongest economic growth rates in the nation.

    Those who advocate for higher government spending will attack Colorado’s TABOR as unworkable and harmful to state-provided services. However, the Washington, D.C.-based Tax Foundation has analyzed the criticisms leveled by TABOR’s leading organizational opponent, the Center on Budget and Policy Priorities, and found them lacking in substance. (See “An Analysis of Misleading Attacks on Colorado's Taxpayer Bill of Rights” )

    In addition, the current proposals to limit spending increases in Pennsylvania have addressed the minor shortcomings in Colorado’s TABOR. For example, the so-called “ratchet-down” effect, which resets spending at a lower level when tax revenues drop during a recession, is solved by directing one-fourth of all surplus revenues into the Rainy Day Fund to help bridge the revenue/spending gap.

    Finally, Colorado’s fiscal challenges are almost entirely caused by Amendment 23 which constitutionally mandates enormous increases in education spending irrespective of economic conditions. Fortunately, Pennsylvania does not have such ill-conceived spending directives.

    These key differences between the proposals in Pennsylvania and Colorado’s TABOR—the absence of constitutionally mandated annual spending increases, the ratchet-down correction, and the budget stabilization fund—have improved the Rocky Mountain State’s formula for economic success.

    Therefore, if passed into law and amended into our state constitution, Pennsylvanians will experience stronger economic growth, more tax relief and restrained government spending—without any of the minor side effects Colorado has experienced.

    PENNSYLVANIA NEEDS A TEL

    The passage of a Pennsylvania TEL would represent one of the most aggressive, pro-jobs, pro-taxpayer, pro-family agendas of the last couple of decades.