When surveyed in December 2009 (Question 26), a majority of North Carolinians supported a fiscal constraint on state government to limit spending increases to no more than price level and population increases. They recognized that more government spending, whether borrowed or from immediate taxation, diverts resources away from personal consumption and the private sector. Government spending should also become more, rather than less, cost-effective over time, as occurs in other sectors of the economy.
As I’ve noted in one of my Spotlights, however, voter-will has failed to bring about that outcome. Despite a rapid population influx since the turn of the century, for example — an 18.5 percent increase between 2000 and 2010 — state spending has grown at an even faster rate. Had total spending tracked population growth and inflation since 2000, it would be $38.6 billion in 2012. That’s 25 percent less than the current level of $51.5 billion.
More recently, the General Fund adjustments, as proposed by North Carolina’s governor, House, and Senate, have all been in one direction: more spending than planned. While the final outcome remains up in the air, the General Fund, as passed by the House and Senate, would spend 97 percent of any surplus revenues available. That is despite the fact that the state’s Rainy Day Fund is a pitiful $300 million and that unfunded liabilities have been exploding in recent years and are in desperate need of address.
The bottom line is that the incentives politicians face, regardless of party label, point in the direction of higher state spending. That is why 49 of the 50 states have a form of balanced budget amendment — and why the federal government needs one so desperately.
The fitting response in North Carolina is a Taxpayer Bill of Rights, also known as a TABOR. These can have a variety of components, but the two of greatest interest are a supermajority requirement for all tax increases and voter approval for all spending increases. Under TABOR, without meeting either of these two thresholds, both taxation and spending would be restrained to no more than population growth and inflation, as constituents want but have not been receiving.
As noted in The Independent Review, 15 states already require a supermajority for tax increases (from two-thirds to three-quarters support), and they tend to spend $100 to $150 less per capita than states without them. Regarding an explicit spending restraint, researcher Matthew Mitchell noted that such restraints work best when tied to population and inflation, rather than income levels. They are also more effective when they require supermajority voter approval, prohibit unfunded mandates on local governments, and have immediate refunds for excess revenues. Given that the forms of restraint in existence vary so much, the outcomes do too, but even a low end of $100 per capita savings would make a TABOR worth implementation.
I’ll continue to examine the mechanics of a TABOR over the next few months. However, North Carolina’s dire financial situation, along with growing evidence from other states, suggests such a constitutional amendment would be a prudent step towards fiscal responsibility and accountability.
Would soaking the rich balance the federal budget?
Antony Davies of LearnLiberty.org lays this folly to rest.
- Given my background as an immigrant from New Zealand, I continue to take interviews about why immigration is a win-win and the prevailing immigration laws are so destructive. If that interests you, please consider this blog post, which includes an interview with WGSO in Louisiana, "Let us come: Immigration is a win-win."
- As some of you may already know, I am highly active on Twitter and glad to engage with more people through that medium. If you would like to follow me, my username is@FergHodgson (si prefiere espanol @Fergusito).
Click here for the Fiscal Insights archive.