CLARKONOMICS: Every dollar we want government to spend on something is a dollar that interferes with the potential for economic growth in the hands of the free market.

States have taken a variety of stances on how to deal with the budget question now that their tax collections have declined dramatically. At one extreme, you have California, which spends on seemingly everything and anything. And on the other extreme, you have Colorado, which tightly controls spending.

The People's Republic of California was once the world's sixth largest economy if it were considered as a standalone country. Today it's eight or tenth, depending on which stats you believe. The state's dysfunctional government has caused entrepreneurs to flee and take the jobs with them.

Chief Executive magazine reports on a study that found 1 in 5 of the top income-generators have left the state. They're overwhelmed by the "tax the rich" mentality. Those 5,000 people who left paid $8 billion in state income tax -- a full one-third of the Golden State's current budget deficit. California has a total population of 37 million.

You can tax people to the point that they throw their hands up in the air and modify how they earn money, or don't work as hard or just simply go elsewhere.

Yet there is another way. Colorado reformed its spendaholic ways with TABOR (Taxpayers' Bill of Rights) back in 1992. The idea behind TABOR is that state spending must be capped at the rate of population growth plus the rate of inflation. It effectively puts a vice grip on state spending. The citizens of Colorado have since voted to weaken TABOR, but they kept its basic premise in place.

The challenge for the other 48 states is choosing between the California and the Colorado models. Do you follow California with the budget deficits projected to run into the future or do you strictly limit government spending like Colorado?

If we want future wealth, we must control the size and shape of government. Yes, everything in a local budget helps somebody, but the cuts have to come at some point. People get addicted to the dole. But that's not what America was built on.