March 18, 2011

How Tax and Expenditure Limitations Affect State Budgets

James C. Musser

Vice President

Matthew D. Mitchell

Senior Research Fellow

In 1976, New Jersey became the first state in the Union to enact a tax or expenditure limitation (TEL). It was a statutory limit on state spending that forbade legislators from growing expenditures faster than state income growth.

Though legislators let it expire just six years later, the New Jersey statute kicked off a new experiment in constitutionally limited government. Many states have attempted to slow state and local government spending by adopting tax or expenditure limitations. As states face hard choices and a need to balance their budgets, are TELs the answer?

For more information about TELs, read "TEL It Like It Is: Do State Tax and Expenditure Limits Actually Limit Spending?" by Matthew Mitchell and "Tax and Expenditure Limits for Long-Run Fiscal Stability" by Frederic Sautet and Emily Washington.