A Lesson in Endpoint Bias

Is the state budget growing faster than inflation?

Is the state budget growing faster than inflation? Answering that question can inform policymakers about whether the state can afford to cut taxes. But there isn’t always a clear answer. It matters when you start the comparison. Starting in different time periods can yield different results.

Below are two charts displaying exactly the same data. The only difference is the line that keeps track of what spending would be if it kept pace with inflation. The first chart shows taxes and fees spent in the state budget from 2001 to 2019, not including revenue from the federal government, with a line adjusting this spending to inflation based on 2001 spending. The second chart shows exactly the same, but this time the line adjusting the spending to inflation is based on 2010 spending. In the first graph, taxes and fees appear not to have kept pace with inflation, but in the second graph, the exact opposite appears true.

In an important sense, they are both accurate. The 2000s were bad for the state economy, and state revenues increased slower than inflation during the decade, despite a couple of tax hikes. And state revenues are increasing faster than inflation since 2010. So are revenues increasing faster than inflation? It depends on how you look at it.