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ARLINGTON, VA—Today, Americans for Prosperity (AFP) released a new report outlining how state legislatures can unleash freedom and reclaim sovereignty with structurally balanced budgets. The report describes model policy for a state structural balance tax and expenditure limitation (TEL), highlighting how adopting structural balance in their budgeting can help state policymakers produce better results.
Most state and local governments use annual balance rules that require that the budget be balanced during a single fiscal year. However, these annual balance rules can have unintended consequences, letting a state spend too much during good years and tempting them with string-laden federal bailouts during a recession. AFP recommends structural balance as a promising alternative.
Structural balance requires that a budget be balanced over the medium term, not every year. This approach can allow for states to build reserves during booms that can be tapped during busts, giving them less policy instability in a dynamic economy and more fiscal independence from the federal government.
AFP Senior Fellow in Fiscal Policy Kurt Couchman made the following statement:
“State officials’ most basic governing duty is to enact a responsible budget while avoiding structural deficits and the buildup of debt. Yet today’s poorly designed budget rules tend to promote excessive short-term tinkering that distracts policymakers from adding as much long-term value as they otherwise could. Structural balance is a transformative policy for fiscal reform that can improve state governance and federalism. Our report shows how adopting structural balance in state budgeting can help states address today’s challenges while embracing tomorrow’s opportunities.”
Last year, Senator Mike Braun (IN) and Rep. Tom Emmer (MN) introduced legislation to create a gradual transition to a structurally balanced budget on the federal level. The Responsible Budget Targets Act was designed to balance our nation’s budget in the coming decades while making fiscal policy more stable and predictable.
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