Executive summary
The 2006 Tax and Spending Control (TASC) initiative was removed from Nevada’s most recent November ballot by the state Supreme Court. Yet polls show that most Silver State residents strongly support additional constitutional limits on state and local government spending.
Of course, in certain quarters this idea remains controversial. Opponents argue that limiting Nevada government growth to benchmarks pegged to the growth of the economy would force government to sacrifice vitally important programs. Constitutional constraints on spending, they say, would eventually force public officials to shortchange vitally important programs, with damaging consequences to the entire state economy.
On the other side, TASC proponents of such limits argue that expansion of government spending is inherently damaging, economically. Such expansion, they contend, directs private financial resources away from the business investment and entrepreneurial innovation that create jobs and wealth for all communities. Instead, resources are routed into government projects that lack the private sector’s market discipline and are marked instead by waste and submarginal productivity. For these reasons, they say, adoption of a TASC-style amendment should lead to measurable improvements in important indicators of economic activity.
To explore this question, NPRI contacted The Beacon Hill Institute at Suffolk University in Boston, Massachusetts, which performs statistical analyses on emerging public policy issues.
Specifically, the Beacon Hill team was asked to determine the likely economic impact on Nevada of a TASC-style constitutional amendment and whether such an amendment would undermine government’s ability to provide its safety-net services.
To address the first question, the authors focused on a key measure of economic activity: Gross State Product per capita. Approaching the question historically, they asked, “How would GSP per capita have been affected, had Nevada adopted TASC in fiscal year 1997?” Because two versions of TASC had been inadvertently submitted to the Nevada Secretary of State’s Office — occasioning the measure’s eventual removal from the ballot — the authors performed a separate analysis for each version.
Under TASC supporters’ preferred version, the authors found, gross state product per person in Nevada would, in 2004, after just seven years, have been 10.12 percent greater under TASC than it was in the amendment’s absence. These results are consistent with several past studies showing that, when government has exceeded its optimal size, legal constraints on government spending redound to the benefit of the economy and substantial improvements in living standards.
