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Constitutional and economic implications of Truth in Spending

March 19, 2012

Constitutional republics, by definition, place restrictions on Legislators.

The most obvious examples are Article I, Section 8 of the U.S. Constitution and the Bill of Rights, which are veritable laundry lists of restrictions on federal legislation. Since 1791, we have added restrictions such as the Thirteenth Amendment (Congress cannot enact or enable slavery), the 21st Amendment (Congress cannot ban alcohol), and the 27th Amendment (Congress cannot award itself mid-term pay raises).

Here in Arizona, we have a few good restrictions on legislation (and many bad ones–such as Prop 301 and 204 from 2000). Prop 108, passed by the voters in 1992, requires Legislators to muster a two-thirds majority to raise taxes. Arizona has benefitted greatly from the fact that taxes have not been easier for Legislators to raise. Were it not for Prop 108, we would probably now have something close to Californian levels of taxation.

The reason for this is explained clearly by public choice economics, which studies the institutional constraints facing political actors. The key phenomenon is Concentrated Benefits and Diffused Costs: interest groups lobbying at the Legislature typically seek a benefit that is relatively large for each of the proposed legislation’s relatively small number of beneficiaries; at the same time, the costs of legislation are typically diffused very broadly across society.

For example, a $60 million handout to a small industry (such as solar) will cost the average sales-tax and income-tax paying Arizonan only $10 a year. That explains why legislative hearing rooms are filled with well-compensated lobbyists seeking corporate welfare handouts for industry and seeking spending increases for state and local government agencies. It also explains why the general public is so uninterested in legislation, on a piece-by-piece basis. Eventually, however, $60 million here and $60 million there adds up to hundreds of millions or billions of dollars and gigantic deficit problems. View this chart to understand just how completely out of bounds state spending was during the past decade (and under a Republican legislative majority!):

http://static.taxcutsforall.com//files/azgenfund2003-2012updJan2012.pdf

That dynamic explains why passing good legislation is an economic public good problem of the first order of difficulty–the average citizen acts as a “free rider” when it comes to being educated and active about legislation, with the result that good legislation is not produced (or in any case, is underproduced, compared to its potential social utility).

Furthermore, Truth in Spending (SB 1275) places very modest requirements on Arizona’s legislators. The bill would simply require a special vote if the Legislature wants to increase state spending at a rate that is faster than the rate of growth of state population plus inflation, and would increase budget transparency (not a bad thing, surely?) by requiring the Legislature to give the public two weeks’ notice before holding a public hearing on the budget. To read and/or print a fact sheet about SB 1275, go to http://tinyurl.com/truthspend

Truth in Spending will serve as a modest “speed bump” for future Legislators–letting them know when spending growth outpaces the ability of the state economy to pay for that spending. SB 1275 functions very differently than Rep. Debbie Lesko’s statutory spending/revenue limit bill–SB 1275 functions as a budget transparency measure, relying on an informed and active public to pressure for budget restraint, rather than functioning as an explicit spending/revenue limit.

This is certainly not any kind of onerous transparency requirement: every year, dozens of Arizona cities and towns provide their citizens with two weeks’ notice before budget and property tax hearings (thanks to the “Truth in Taxation” law).

Echoing James Madison’s point (“If men were angels…”), if all Legislators were in the mold of (insert your favorite Legislator’s name here), we would have no need for constitutional or statutory hurdles for legislation. Here in the terrestrial sphere, such limitations are very much needed.

For Liberty, Tom

Tom Jenney
Arizona Director
Americans for Prosperity
www.aztaxpayers.org
tjenney@afphq.org

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