More Modest Growth In State Spending Can Facilitate Further Tax Relief

White House officials recently confirmed to reporters that the federal government’s budget deficit nearly doubled over the past year, rising from $1 trillion to $2 trillion. Some see this as proof that some taxpayers aren’t paying enough. Others see it as another indicator the government doesn’t have a revenue problem, it has a spending problem, which is a point made so often over the years in American political debates, often by conservatives, that it can now sound cliché to some. But historical data for federal and state spending support the assertion.

Over the past decade, from 2013 to 2022, federal spending rose by 69.4%, more than three times faster than the rate of population growth plus inflation during that period, which was 21.6%. If Congress, along with the Obama and Trump administrations, had limited the growth in spending to the rate of population growth plus inflation during the last decade, the 2022 federal budget would’ve been $1.6 trillion less than it actually was.

As at the federal level, the problem for state governments is also found on the spending side of the ledger. If all 50 state governments had grown their budgets in line with the rate of population growth plus inflation for the last decade, for example, they would’ve spent $344 billion less than the $1.74 trillion that was actually spent in 2022.

Forget cuts to government spending or the “slashing of government” that progressives often accuse conservatives of proposing. If spending had only grown at a more modest pace over the past decade, in line with population growth and inflation, the federal government and all 50 state governments would’ve spent nearly $2 trillion less last year than they did.

More Sustainable Budgeting On Display In The States

While the federal government and most states are spending at an unsustainable clip, for much of the past decade Tennessee lawmakers demonstrated to the nation that conservative budgeting, defined as keeping spending in line with or below the rate of population growth plus inflation, is possible. From 2013 to 2020, total government spending in Tennessee grew slightly below the rate of population growth plus inflation.

Emergency federal revenue showered on Tennessee and other states beginning in 2020 provided many states with funds that weren’t needed. Since then, lawmakers in Nashville and other state capitals have had a tougher time keeping spending levels down. While the growth in government spending in Tennessee has been below the rate of population growth plus inflation for most of the past decade, that hasn’t been the case for the last three years. The next budget that lawmakers enact in 2024 provides an opportunity for course correction.

North Carolina, like Tennessee, is a state where lawmakers held the growth of the state budget below the rate of population growth plus inflation for most of the past decade but have struggled to do so since emergency federal money began raining down on states three years ago. While the spending of state funds over the past decade in North Carolina has not exceeded the rate of population growth plus inflation, that hasn’t been the case for total state outlays including federal aid.

North Carolina and Tennessee aren’t the only states where lawmakers have been able to keep the growth in state spending below the rate of population growth plus inflation. In fact, over the last decade lawmakers in Alaska, Colorado, West Virginia, and Wyoming held growth in state funds and all funds, which includes federal transfer funds, beneath the rate of population growth plus inflation.

North Carolina is among the seven states that kept the growth in state funds, but not total outlays, under the rate of population growth plus inflation over the past decade. The others are Connecticut, Louisiana, Massachusetts, Montana, Oklahoma, and Texas.

Though North Carolina and Tennessee lawmakers have some work to do to get the trajectory of state spending back in line with the rate of population growth plus inflation, for most of the past decade they’ve demonstrated to lawmakers in other states and Congress that more sustainable and conservative budgeting is indeed achievable. It doesn’t require “slashing government” or “starving the beast.” Rather, it means simply growing government spending at more modest rates. Had that been done everywhere over the past decade, U.S. taxpayers could’ve held onto nearly $2 trillion in income last year alone.

As recent events in Congress have underscored, the leadership needed to address the challenges of the day seems unlikely to come from Washington. Governors and state lawmakers, however, are stepping into the leadership vacuum — as has been witnessed in Tennessee, North Carolina, Texas, Florida, and elsewhere — demonstrating what more sustainable budgeting and sounder governance look like.