The out-of-control federal budget deficit has become one of the most, if not the most, important issue for voters going in to 2012. Adding insult to the overspending injury, most states are in red ink up to their chins. This has sparked a new debate over legislative measures to rein in, and even outlaw, deficits. Some measures may very well work, as did the Gann Limit in California back in the 1980s, but other ideas could easily become vehicles for tax increases instead of spending limits. Therefore, it is extremely important that any push for constitutional or other legal measures toward a balanced budget are coupled with thorough economic analysis.
An example of a bad idea for a balanced-budget constitutoinal amendment is bill sponsored by, among others, Senators Mark Udall (D-CO) and Richard Shelby (R-AL). The only effect of their proposal could easily be tax increases in times of deficits.
A reason why legal measures toward a balanced budget lead to tax increases is that they primarily focus on matching spending with tax revenues. A good example of this is Colorado’s TABOR law (Taxpayers Bill of Rights). Enacted in 1992 TABOR combined strict spending limits with budget surplus refunding: if the state took in more in tax revenues than it spent, the balance was returned to taxpayers.
A problem with Colorado’s spending cap is that it did not say anything about what government can and cannot do. All spending programs were equally important – they just could not grow as fast as they had before. This led to a challenge against TABOR in 2000, when Colorado voters passed Amendment 23. Its purpose was to guarantee increases in education spending beyond what was permitted by TABOR. As a result, TABOR has decreased in prominence and is now being challenged again. The Denver Post reports:
Republicans rallied Monday to the defense of the Taxpayer’s Bill of Rights in response to a federal lawsuit alleging TABOR is unconstitutional. The suit, filed in federal court Monday, alleges TABOR violates a provision of the U.S. Constitution that guarantees every state shall have a republican form of government in which elected representatives govern. TABOR bars the legislature from raising taxes and requires that all tax increases be put before voters. A bipartisan group of 34 plaintiffs signed on to the lawsuit, including former state Sen. Norma Anderson, R-Lakewood, and former state Rep. Bob Briggs, R-Westminster. “TABOR has turned Colorado into a national example of how not to govern,” Anderson said in a statement. “States from coast to coast have considered proposals modeled after TABOR but rejected them because of the bad consequences they see for economic development and education.” But Anderson’s and Briggs’ voices were among the minority in the Colorado GOP. “Colorado citizens deserve the right to vote on any tax increases they will be required to pay,” said Colorado Republican Party Chairman Ryan Call. “The Taxpayer’s Bill of Rights doesn’t prevent tax increases, it simply requires politicians to first make their case to the voters as to why a state or local tax increase is necessary.”
If the purpose behind TABOR in Colorado was to keep government spending in check, it has failed miserably. Since TABOR was enacted in 1992, total state government spending in The Centennial State has grown by, on average, 9.4 percent per year, equal to or more than states with no TABOR on the books.
There are three reasons why Colorado’s legislators have been able to throw such a spending party for almost 20 years. First, TABOR does not put an absolute cap on spending growth – it “only” forces politicians to let voters have a say in tax increases. Secondly, the law actually does not apply to all government spending. Its restrictions are limited to the General Fund. As a result, over the past two decades General Fund spending has grown about a third as fast as Other Funds spending. Both are paid for with in-state sourced revenues, but when revenues go in to Other Funds they are called “fees”, as opposed to “taxes” for the General Fund. And last but not least: TABOR does, again, not specify what spending government can and cannot engage in.
If the goal is to contain government spending, then that is what legislative initiatives should focus on. Not all government spending is equally important.
