Thursday, April 25, 2013
In this symposium essay, we explore the theoretical implications of one particular type of fiscal limitation on state legislatures — namely, special Tax Increase Limitation rules (TILs). We argue that there is no meaningful content to the term “tax increase” as used in TILs. This incoherence allows legislative majorities who wish to do so to circumvent TILs. This fact about TILs, among others, explains the observed inefficacy of TILs in shrinking the size of state governments.
Furthermore, TILs are not just harmless political theater. When combined with other common features of state fiscal constitutions, particularly Balanced Budget Requirements (BBRs), they tend to amplify revenue volatility. Revenue volatility is far from an imagined horrible, but is currently creating severe challenges for state revenue systems. Moreover, TILs potentially undermine jurisdictional competition, which is a relatively more effective means for controlling the size of government.