Federal spending has leaped 25 percent
since 2001, exceeding $20,000 per household (See Chart 1).
Frustrated taxpayers are seeking ways to protect their family
budgets from the federal budget. These taxpayers should look to
1992, Colorado citizens revolted against their free-spending
lawmakers by petitioning for a referendum to limit the growth of
state government to the inflation rate plus the population growth
rate. Voters quickly approved the Taxpayers' Bill of Rights
(TABOR), ushering in a new era of fiscal responsibility and
economic growth. Over the next decade, spending was reined in,
taxes plummeted, and the Colorado economy became the envy of the
as Congress followed the states' lead on welfare reform in the
1990s, it should follow the states' lead on spending limits. A
federal Taxpayers' Bill of Rights would succeed where other budget
reforms have failed. It would protect taxpayers' paychecks by
forcing lawmakers to live under constraints--just like families,
businesses, and state and local governments do. This paper explains
how such a policy could work.
The Failure of Other Options
During the past decade, reforming the
budget process has been an exercise in futility. Lawmakers who
focus obsessively on a single $100,000 pork project pay scant
attention to the overall budgetary framework used to allocate $2.3
trillion in federal spending. When budget process reform is finally
debated, lawmakers focus more on protecting their committees' turfs
than on fixing the budget problems. The rare (and overly arcane)
reforms that are enacted are first watered down to irrelevance and
then riddled with loopholes. All four reforms of the budget process
that have been tried in the past decade have failed.
(PAYGO) Rules and Discretionary Spending Caps. PAYGO
rules, in place from 1990 through 2002, mandated that any new law
cutting taxes or expanding entitlements be balanced by equal tax
increases or entitlement cuts. It was an abysmal failure: Mandatory
spending actually grew faster after
PAYGO was enacted. It failed because it limited only the creation
of new entitlements, while allowing current programs--such as
Social Security Medicare, Medicaid, and farm subsidies--to expand
rapidly. Additionally, PAYGO placed barriers on tax relief, and
Congress easily dismissed PAYGO rules when they became
Discretionary spending caps, written every
three to five years, were more successful. Yet, even caps were too
easily disregarded by lawmakers, who could exempt any program
simply by labeling it an "emergency." In the House of
Representatives, caps could be waived with a simple majority vote.
Recently, Members of the House strongly rejected a measure that
would have restored discretionary spending caps--effectively
refusing to accept any statutory limit on their ability to spend
Budget Protection Act. Proposed by several conservatives
and moderates in the House, the Family Budget Protection Act (FBPA)
contained over one dozen important procedural reforms. These included
converting the concurrent budget resolution into a joint budget
resolution (which would have the force of law), entitlement caps,
point-of-order reform, enhanced rescission, and rules making it
easier to save money in appropriations bills. Instead of a bias
toward bigger government and higher taxes, the budget process would
finally protect taxpayers. Regrettably, these reforms were
overwhelmingly defeated in the House.
FBPA was rejected, in part, because it was too arcane to be
understood outside the Beltway. Lawmakers are typically interested
in protecting their committees' turf and retaining their ability to
distribute government benefits. Only a popular outcry from the
voters back home will persuade most lawmakers to overcome their own
bias and vote for fiscal responsibility. Because the FBPA was too
complex to be understood by most voters, there was no popular push
for it, and lawmakers were free to reject it without serious
Amendment. Unlike the FBPA, the balanced budget amendment
is widely understood by the American people (which is why it
receives broader support from lawmakers, despite being a more
radical reform). The movement for a balanced budget amendment has
stalled as well, not only because the budget reached surplus
between 1998 and 2001, but also because constitutional amendments
are extremely difficult to enact.
Additionally, a balanced budget amendment
focuses on the wrong issue. The budget deficit is merely a symptom;
runaway spending is the disease. The United States could balance
the budget tomorrow by raising taxes to levels that would devastate
families, businesses, and the economy. Instead of seeing deficit
reduction as end in itself, lawmakers should focus on the runaway
spending that creates the deficits and high taxes in the first
to Cut Spending. Lawmakers continue to work within a
budget framework designed 30 years ago to maximize federal
spending. Many Members of Congress claim that they can cut spending
on their own and do not need any budget process reforms or spending
limits to enforce what they plan to do anyway. This viewpoint
represents the triumph of hope over experience. These lawmakers are
absolutely correct that people, not process, are ultimately to
blame for runaway spending. However, persistent runaway spending
provides ample evidence that lawmakers are unable to control
spending on their own without outside constraints.
According to public choice theory,
lawmakers have incentives to continually expand government. This is
exactly what is happening. The current federal budget process
requires no priority setting, no trade offs, and no difficult
decisions. Families operate under external budget constraints, as
does virtually every state government. It is naïve and
ahistorical to believe that Members of Congress will resist the
budget process pro-spending bias and reduce spending on their
lessons can be drawn from these failures:
- Members of Congress will not make
difficult spending trade-offs unless required by law.
- Although a constitutional amendment would
be the most enforceable means of reform, it is too difficult to
- A successful proposal for reforming the
budget process must be understood and strongly supported by voters
in order to overcome the turf-protection and pro-spending bias in
- Spending constraints should put all
spending on the table--mandatory and discretionary, current and
proposed. All programs should have to compete with each other for
the limited federal funds.
- Members of Congress will exploit every
possible weakness in spending constraints.
The Promise of a Taxpayers'
Bill of Rights
Taxpayers' Bill of Rights presents a simple, yet effective way to
curb runaway spending. TABOR would limit the growth of federal
spending to the inflation rate plus population growth. Rather than
growing 6.4 percent annually (the average during the past five
years), federal spending would typically increase by approximately
3.3 percent annually. Although this slower growth rate may not seem
like a significant change, it would save taxpayers more than $4
trillion over the next 10 years (See Chart 2).
Limiting annual federal spending growth to
approximately 3.3 percent is not too much to ask of Congress,
especially considering that the federal budget has expanded by 30
percent in the past five years and contains hundreds of billions of
dollars worth of wasteful and obsolete programs. The current $2.3
trillion federal budget would still be large enough to fund all
current programs, and these programs could continue growing at the
inflation rate plus the population growth rate. Programs that
expand at faster rates would need to be offset by reductions in the
growth rates of other programs.
Six Principles of a Federal TABOR
federal Taxpayers' Bill of Rights should follow six basic
Principle 1: A
TABOR Should Restrict Spending Growth, Not Revenues. High
tax rates devastate economies. Yet a law simply requiring low tax
revenues without any spending controls is not sustainable because
unrestrained spending would likely create unallowably large budget
deficits until taxes would need to be raised. The simple truth is
that federal spending determines the required level of taxes.
Therefore, a law limiting federal spending is the most effective
way to guarantee long-term tax relief.
Furthermore, lawmakers cannot exercise
much control over tax revenues. Economic trends create short-run
revenue fluctuations that make it nearly impossible to target a
specified revenue level. A TABOR would be more effective by
focusing on spending, which lawmakers can directly control.
TABOR spending restrictions can easily
avoid two predictable problems: First, in order to prevent
forecasting games, the TABOR inflation and population growth
allowances should be a rolling average of the previous three years'
rates. Second, TABOR should apply to outlays (actual expenditures)
rather than budget authority (the credit limit Congress provides to
an agency to spend down). Over the past few years, Congress has
manipulated budget authority amounts to the point that they have
become meaningless. Outlays are what matter because they are actual
expenditures of taxpayer money.
TABOR Spending Limits Should Be Enforced by a Two-thirds
Supermajority and by Sequestration. TABOR spending limits
would be enforced during the budget resolution vote, as well as the
vote on any discretionary appropriations bill or entitlement reform
that would put total spending above the TABOR cap. (A projection of
total mandatory outlays would need to be combined with the
discretionary spending bills to arrive at the spending total.)
Legislation violating TABOR would require a two-thirds
two-thirds supermajority requirement recognizes that there will be
rare emergencies (e.g., war) when Congress may need to spend more
than TABOR allows. Setting the bar at two-thirds is low enough to
clear during a national emergency or war, but high enough to
prevent abuse. This policy would require Rules Committee reforms
(or at least cooperation from the Rules Committee) to prevent the
altering of this two-thirds requirement during key votes.
Congress exceeds TABOR spending without getting the two-thirds vote
necessary to enact the spending override (for example, entitlement
programs that spend more than projected), Congress could come back
and cut spending elsewhere to remain in line with TABOR's limits.
Otherwise, the Office of Management and Budget would sequester
funds using preset sequestration formulas, which were used under
discretionary spending caps and PAYGO.
Congress Should Be Required to Budget for Emergencies. No
spending restraint is legislatively foolproof, so there must remain
a political stigma attached to bypassing the spending limits.
However, if two-thirds of Congress had to override TABOR every time
there was a small emergency somewhere in America, these overrides
would become routine and less controversial. Requiring Congress to
reserve room in the budget for the predictable emergencies would
keep all but the most catastrophic emergencies from requiring TABOR
States Should Be Protected from New Unfunded Mandates. In
a budget-cutting environment, lawmakers may be tempted to find
savings by passing new unfunded mandates onto states. This is
counter to TABOR's goal of reducing the cost of government. If
Congress passes a new unfunded mandate, the TABOR cap should be
reduced by the amount of federal money saved, as determined by the
Congressional Budget Office.
Budget Surpluses Should Be Split Between Tax Rebates and Debt
Reduction . The 1998-2001 budget surpluses induced a
massive spending spree because these surpluses were portrayed as
"free money" sitting in a pile waiting to be used. If TABOR
successfully restrains spending and creates budget surpluses,
lawmakers will surely be tempted to override TABOR and spend more
on popular programs.
if budget surpluses were automatically split between tax rebates
and debt relief? Instead of spending "free money," lawmakers would
be cutting the tax rebates to taxpayers as well as raiding a debt
relief fund designed to reduce the debt burden passed onto future
TABOR Should Be a Statute, Not a Constitutional Amendment.
While Colorado's TABOR is an amendment (and therefore well
enforced), attempting to amend the U.S. Constitution would probably
be a futile quest, which leaves reform by statute as the best
What About Medicare and
most predictable objection to a Taxpayers' Bill of Rights is that
the exploding costs of Medicare and Social Security will make
restraining federal spending nearly impossible. These programs are
projected to grow 6 percent annually, which would seem to bar
lawmakers from capping total federal spending at an annual growth
rate of about 3.3 percent.
However, this is exactly why the nation
needs a TABOR law. If Social Security and Medicare are allowed to
grow at the current rate, they will bankrupt the federal budget.
Within a few decades, taxes will have to increase by the current
equivalent of $10,000 per household just to pay for Social Security
and Medicare--unless these programs are reformed.
Furthermore, excluding Social Security and
Medicare from TABOR would deny the fundamental reality that budgets
are about setting priorities and making trade-offs. These programs
do not exist in a vacuum and cannot be considered separately from
the rest of the federal budget. If lawmakers choose to let these
programs grow at their projected rates, they will be forced to
either eliminate every other federal program or raise taxes to
economically devastating levels. Exempting these programs from
TABOR will not avoid this mathematical reality. It will merely
delay the painful but inevitable trade-offs.
does not mean that lawmakers would immediately have to reform
Social Security and Medicare before the nation has developed a
consensus on these issues. These programs are currently growing
approximately $20 billion per year faster than they would if they
grew at a 3.3 percent rate that would be consistent with a typical
TABOR allowance. Over the next few years, Congress could easily
offset the $20 billion increases by eliminating the hundreds of
billions of dollars of wasteful and obsolete spending in the
Those offsets would buy Congress at least five years to reform
Social Security and Medicare before their costs begin to overwhelm
TABOR spending levels.
current federal spending spree is unsustainable; yet, Congress has
rejected recent attempts to bring sanity to the budget process and
encourage fiscal responsibility. A federal Taxpayers' Bill of
Rights provides a simple, effective, proven model for spending
reform. A TABOR would force lawmakers to live under spending
restraints in the same manner that families, businesses, and state
and local governments do. It would force lawmakers to set
priorities, make trade-offs, and reduce wasteful spending. Colorado
has proved that TABOR can restrain spending, reduce taxes, and
facilitate economic growth. More than ever, a Taxpayers' Bill of
Rights is needed to protect the family budget from the federal
Riedl is Grover M. Hermann Fellow in Federal Budgetary
Affairs in the Thomas A. Roe Institute for Economic Policy Studies
at The Heritage Foundation.