May 26, 2015

Why State Legislatures Should Keep Taxing and Spending Committees Separate

Matthew D. Mitchell

Senior Research Fellow
Summary

In inflation-adjusted terms, the U.S. economy is nearly six times larger today than it was in 1950. This is a good thing. But, over the same time period, inflation-adjusted state and local government spending has grown more than twelvefold. Since the ultimate source of government revenue is the private economy, this trend is not sustainable nor is it without cost.

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In inflation-adjusted terms, the U.S. economy is nearly six times larger today than it was in 1950. This is a good thing. But, over the same time period, inflation-adjusted state and local government spending has grown more than twelvefold. Since the ultimate source of government revenue is the private economy, this trend is not sustainable nor is it without cost.

Compared with a half century ago, eight more states tax corporate income, 13 more tax personal income and 12 more tax sales. The average of each of these rates has also risen. Among states that tax sales, for example, the rate has more than doubled from 2.5 percent in 1958 to more than 5.6 percent in 2014. But these increases are not enough to keep up with planned spending. According to various projections, state pension promises exceed expected revenues by between $3 trillion and $4 trillion.

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