If it saves taxpayers money, it must be bad
- Monday, May 16, 2005
Democrats and Republicans alike this year have ridiculed Bob Beers’ legislation for a Colorado-style Taxpayer Bill of Rights (TABOR). Many have said the measure is failing in Colorado, and that the state’s governor and legislators need to overturn the measure to avert disaster in that state.
On the contrary, Colorado’s Taxpayer Bill of Rights—put in place by voter initiative in 1992—has been an unmitigated success, and that is why Colorado politicians say it is a failure.
Over $3 billion in tax dollars has been returned by the measure to Colorado citizens. In the eyes of legislators who want to spend that money with impunity, that makes TABOR a failure. But Colorado citizens see it much differently.
Colorado’s Taxpayer Bill of Rights limits increases in the state budget to Consumer Price Index (CPI) increases plus population growth. Should the state collect more, the excess must be returned to taxpayers—unless they vote otherwise. Should the state collect less, Colorado’s budget adjusts down to that new baseline level.
University of Colorado economics professor Barry Poulson explained the five keys to implementing a TABOR amendment to a FreedomFest seminar crowd last week. First of all, TABOR must be a constitutional amendment. If it is not, legislators will easily evade or avoid budget constraints. Second, the amendment must be stringent. Next, the measure must cap all revenues and spending. Fourth, surplus collected revenue must be returned to the taxpayer, and fifth, any TABOR amendment must allow only voters to approve any spending increases beyond TABOR limits.
Poulson explained that what TABOR so effectively does is stop the ratcheting up of government, which we are experiencing in Nevada now. The 2003 Legislature and the governor panicked after the state’s economy swooned following 9/11, and raised taxes by 33 percent. The economy over the past two years has been extraordinary and now state coffers are flush. But, instead of lowering taxes and maintaining budget discipline, the Legislature is now set to spend most and rebate some of the money.
When the business cycle inevitably turns, and sales, gaming and property tax collections level off or subside, lawmakers will then insist that taxes be raised to make up the shortfall to pay for the increasingly expanding budget. This is the ratcheting up of government.
Dr. Poulson pointed out that TABOR is both a national and international movement and that he is advising groups in a number of states as well as New Zealand and Canada. The Texas Legislature enacted a TABOR-like amendment last week.
Critics of TABOR do not like taxpayer democracy. These elitists believe that legislators and government bureaucrats should make fiscal policy decisions, not the citizens who pay the taxes.
The professor pointed out that legislators now use imperfect information to get elected and make policy decisions. TABOR on the other hand creates a contract. Citizens know how much government is going to grow.
This revolutionary transparency brings truth in advertising to state finance, and with that we get higher quality and lower cost government, Poulson explained.
Dr. Poulson, who also serves on the Colorado Commission on Taxation, urged his audience to “confront the rent-seekers—fight the good fight.” TABOR is a way for limited government activists to “play offense, rather than always playing defense.”
In Poulson’s view Colorado’s TABOR has one flaw, which has in part led to the current furor in Colorado. There is no “rainy day” or “stabilization fund” that prevents a ratcheting down of the state budget during recessions. Thus, as revenues drop, and the state’s budget baseline is reestablished at lower levels, spending remains lower during good times. When that happens, cries for repeal are heard.
So Poulsen’s current model for TABOR includes a rainy day fund component to stabilize the budget during recessions. He believes this answers the primary criticism of TABOR. Poulson stressed that the rainy day fund must be clearly defined (he mentioned 10 percent of a state’s overall budget) and could only be used at the bottom of business cycles.
TABOR gives citizens legal standing on state fiscal matters, allowing ordinary taxpayers to hold government’s feet to the fire. If state or local government spends too much, citizens can sue them, and Colorado local governments have been forced to pay penalties for violating TABOR.
TABOR has provided an unprecedented voice for Colorado taxpayers. The Nevada Legislature refuses to give its taxpayers that same voice. As in Colorado, Nevada taxpayers must take matters into their own hands with a TABOR initiative.
Doug French is executive vice president at a Southern Nevada bank and a policy fellow of the Nevada Policy Research Institute.