Several states have some form of a spending or tax limitation either in their code or in the state constitution. Iowa does not have a spending limitation in the constitution, but state code mandates that the legislature cannot spend more than 99 percent of revenues. The purpose of a spending limit is to control the growth of government and control future spending. “The main goal of fiscal policy should be to shrink the burden of government spending as a share of economic output,” noted economist Daniel Mitchell.
Colorado has the strongest spending limitation. In 1992 Colorado voters adopted TABOR (Taxpayer Bill of Rights), a constitutional amendment that limits government spending to the rate of inflation plus population and requires voters consent to increase spending and taxes. The problem with any tax and spending limitation amendment whether it is a supermajority vote of the Legislature or in TABOR’s case a vote of the people these measures are primarily defensive in the sense that they add greater protection to taxpayers, but it does not guarantee that government spending or taxes will not increase.
Since spending and tax limitations can take various forms, Matthew Mitchell, a senior fellow at the Mercatus Center, contends that the most effective will have the following characteristics:
- Spending limitation formula is based on the sum of inflation plus population growth.
- Based upon spending rather than revenue.
- Require a supermajority rather than a majority to be overridden.
- Immediately refund revenue collected in excess of the limit.
- Written in the state constitution rather than in code.
John Hood, chairman of the John Locke Foundation, argues that spending limitations “work much better if they are coupled with meaningful tax limits.” Using TABOR as an example it has served Colorado taxpayers well by not only slowing the growth of government and creating economic growth, but also returning hard earned money back to taxpayers. Analysis demonstrates that “cumulatively, TABOR refunds have been over $800 per Coloradan, or $3,200 for a family of four.”
Critics of spending limitations argue that they will deprive the state from the ability to fully fund government programs, but even TABOR demonstrates that it did not “cut or
reduce reasonable government growth,” but rather slows the growth of government. “The bottom line is that expenditure limits – if properly designed and enforced – are an effective way of controlling government spending. That doesn’t mean that politicians won’t figure out ways to over-spend, just like locks on doors don’t always stop burglars. But both are better than the alternative of no limits or no locks,” reasons Daniel Mitchell.
Under spending limitations, such as TABOR, the special interests must compete for government revenues. Today in Iowa many programs are out shouting the taxpayer for attention. Whether it is water quality, mental health, education, or other programs all of these and more are calling for more funding, while the taxpayer’s voice is often drowned out.
During the 2017 legislative session, the Iowa Senate passed a spending limitation constitutional amendment. This measure would “limit the annual increase in spending from year to year to the lesser of 99 percent of the estimated revenue for that fiscal year, or 4 percent above the prior year’s revenue.” Fiscal analysis of by the Legislative Services Agency (LSA) applied the rules of the resolution to the past ten legislative sessions and they found that “appropriations would have been lower than the enacted appropriations in seven of the fiscal years.”
State Senator Charles Schneider wrote that the analysis “shows that if the spending limit had been in place since fiscal year 2012, state government could have spent $488.2 million less than it has.” The impact of this would have been substantial. “Going into fiscal year 2017, we could have had a carryover surplus of at least $442.8 million. Had that been the case, we would not have had to deappropriate funds for fiscal year 2017, and we would not have to dip into the cash reserve fund to fill the remaining budget gap for this fiscal year,” stated Senator Schneider.
Iowa policymakers should seriously consider a state spending limitation amendment. This would control the growth of state government, while also protecting the hard-earned dollars of Iowa taxpayers. In addition, a spending limitation would only slow the growth of government and force the legislature to focus on the priorities of state government. “Politicians are forced to abide by the rules that apply to every household and business in the state. In other words, they have to prioritize,” argues Daniel Mitchell.
Strengthening Iowa’s spending limitation would finally place taxpayers first.
Author: John Hendrickson
John Hendrickson is a Policy Analyst with Iowans for Tax Relief, West Des Moines, Iowa
