Tax Justice Digest stories about Colorado
Meanwhile, a proposal to cap spending is making its way through the Missouri House of Representatives, which will serve as another test for the pro-TABOR forces. Read the Missouri Budget Project's warning about TABOR's impact on the state.
The case against the spending cap was articulated brilliantly by Jean Ross of the California Budget Project in a recent op-ed published in the Los Angeles Times. Ross noted that "far from being a cure-all, a hard spending cap would place an arbitrary stranglehold on the state's ability to improve its schools, rebuild its infrastructure, care for its senior population and respond nimbly to future challenges. Disguised as a solution, this cap could quickly become one of California's most serious budgetary problems". She goes on to point out that her organization "found that if this cap had been enacted in 1995, using that year's budget as the base, it would have resulted in a 2008-09 budget $39.7 billion below what was enacted in September. While this would bring the budget into balance, it also would require spending cuts more than twice as large as those proposed by the governor."
Californians familiar with Colorado's TABOR debacle should be especially wary of what Ross points out next: "The hard spending cap also would be incompatible with Proposition 98, which guarantees a minimum level of state funding for K-12 education and community colleges. That guarantee would generally outpace increases allowed under the cap, which would result in education crowding out all other state spending". The parallels with the difficulties created by Colorado's Amendment 23 (which requires increases in K-12 spending of 1% plus inflation each year) couldn't be more obvious.
There isn't any question that California needs more revenue. Just look at the fact that California's bond rating was recently decreased by two grades, or that the state Controller had to start issuing IOU's instead of tax refunds today. But while securing more revenue should be a top priority this year, accepting a spending cap as part of the compromise would be an action that Californians would regret for years.
The news from
So, while Governor Schwarzenegger is busy vetoing the Assembly's latest budget plan, because, he maintains, it "punish[es] people with increased taxes," millions of Californians must now prepare themselves to pay, in essence, higher taxes than they expected to pay this year. Such an outcome hardly seems justifiable, given the likelihood that those residents entitled to refunds are low- and moderate-income families, families that would almost certainly use those tax refunds to pay off bills or to make long-planned purchases.
In light of these developments, the state's Legislative Analyst, Mac Taylor, is now urging policymakers to put tax increases before the states' voters as early as April, so that they can avoid the supermajority-induced gridlock that has plagued Sacramento in recent years.
Of course,
Vendor discounts allow retailers to legally keep a portion of the sales tax revenue they collect as compensation for the costs involved in collecting and remitting the tax. Twenty six states currently provide retailers with such compensation, amounting to a total of over $1 billion in annual revenue losses for those states.
The policy prescription in many states is fairly clear. While there may be room for debate over whether any compensation is warranted, what is not in question is that there should be a sensible limit on the maximum amount that any one business can receive via this practice. As author Philip Mattera points out, “the main expenses that retailers incur with regard to sales taxes, especially software programs to track them, are fixed costs that do not rise in tandem with growth in receipts.”
Those states without such a limitation in many cases forfeit quite substantial amounts of revenue through vendor discounts. Illinois, for example, loses over $126 million annually due to the practice. Texas, Pennsylvania, and Colorado each lose in the neighborhood of $70 - $90 million per year. Thirteen of the twenty six states offering vendor discounts do not cap the amount any individual retailer can claim. In addition, five states that do impose limits on maximum compensation have set those limits at seemingly excessive levels, ranging from $10,000 to $240,000 per retailer.
For state-by-state details on existing vendor compensation practices, as well as other ways in which retailers are being subsidized through the sales tax, see the report here.
Ballot Proposal to Repeal Massachusetts Income Tax
In Massachusetts, that support (in opposition to the proposed repeal of the state’s income tax) comes in the form of a 26 page report prepared by the Global Insight consulting firm on behalf of the Associated Industries of Massachusetts, Greater Boston Chamber of Commerce, Massachusetts Business Roundtable, and the Massachusetts Taxpayers Foundation. Among the report’s criticisms is that the measure would slash funds so drastically that low- and middle-income residents would be effectively deprived of access to higher education. The report also places emphasis on the inevitable decline in the state’s infrastructure (a key component of doing business) that would accompany the repeal. An apt summary of the report, in the words of the Greater Boston Chamber of Commerce, is that repealing the income tax would “devastate the state’s economy”.
Ballot Proposal to Undo Part of the So-Called "Taxpayer Bill of Rights" in Colorado
Equally influential business groups in Colorado have expressed a similar desire for sound tax policy. In Colorado, the debate is over a proposal to alter the requirement under the "TABOR" amendment, passed a decade ago, that requires surplus revenues to be used for rebate checks sent to households. The proposal on the ballot this year would redirect the automatic TABOR refunds into a special fund for education, which would help free the state from the unrealistic restraints on revenue imposed by TABOR. Among the business groups in support of the measure are the Associated General Contractors, Boulder Chamber of Commerce, Colorado Hotel and Lodging Association, Colorado Retail Council, Colorado Springs Chamber of Commerce, Denver Hispanic Chamber of Commerce, and the Denver Metro Chamber of Commerce. In the words of the Colorado Springs Chamber of Commerce, “this proposal will help Colorado get out of the bottom in funding”, and is simply “smart business”.
The broad coalitions forming in each of these states vividly demonstrate the importance of the coming vote on these proposals. And at least in Massachusetts, a recent poll indicates that this broad-base of opposition appears to be producing results. But in Colorado, unfortunately, the numbers are looking much less favorable, although the vote is still too close to call.
A proposal to be voted on in Oregon seeks to allow taxpayers to deduct (in full) their income tax payments to the federal government for state income tax purposes. Currently, only the first $5,600 one pays to the federal government is allowed to be deducted on Oregon state income tax forms. This arrangement already has regressive results, and by uncapping the deduction limit completely, those wealthy individuals who owe the most in federal income taxes will be allowed to slash their Oregon tax payments substantially.
Though the workings of the Oregon proposal may seem a bit confusing, its results most certainly are not. The vast majority (78 percent) of Oregonian families will get nothing, the wealthiest 1 percent will enjoy a nearly $16,000 annual tax cut, and the government of Oregon will have to make due with between $500 million and $1 billion less in revenues each year. (Six other states, Alabama, Iowa, Louisiana, Missouri, Montana, and North Dakota, currently allow for some deduction of federal income taxes, and they should all end this regressive practice.)
So how are backers of the Oregon proposal justifying this giveaway to the rich? You guessed it. One news account informs us that "[Russ] Walker, Oregon director of the national fiscal conservative group FreedomWorks [and co-sponsor of Measure 59], says the tax reduction would produce a supply-side result of economic expansion with more income and more tax revenue to offset the cut." The argument is that the tax cut will at least increase revenue enough to pay for itself -- the most extreme form of supply-side thinking.
North Dakota voters will also be taking a look at their income tax this fall. Backers of an income tax rate cut are enthusiastically pushing a plan that offers an average tax cut of just $83 to the bottom 60 percent of taxpayers statewide. What's the big deal? The wealthiest 1 percent of North Dakotans would save an average of over $11,000 per year. And those numbers don't even include the corporate income tax cuts, which are sure to also disproportionately benefit the wealthy. And to make matters worse, the proposal would cost the state over $200 million annually.
And how do backers of this measure justify giving away revenue to the rich? Well, if a tax cut simply pays for itself through supply-side magic, backers hope that the practical, common sense folk of North Dakota won't ask such uncomfortable questions. As one news account explains, "Measure 2 proposes to cut income taxes 50 percent and corporate taxes 15 percent, said Duane Sand of the group Americans for Prosperity [the measure's principal backer]. Sand said the state's tax policies have forced young and old to leave the state. The OMB estimates Measure 2 would cut state revenue about $415 million for the next biennium. That money would be replaced by higher tax collections from increased economic activity, Sand said."
A proposal on the ballot in Massachusetts provides perhaps the most obvious example of the recklessness so often involved in anti-tax ballot initiatives. Massachusetts voters will once again have to decide this November on a proposal to constitutionally end the income tax -- a move that would reduce government revenues by a whopping 40 percent, and would undoubtedly have dire consequences in the form of reduced government services. But while all Massachusetts residents would have to share in the pain of a 40 percent reduction in their government's budget, the wealthy would be the primary beneficiaries of the tax cut, since the income tax is the only major progressive tax levied by the state. Even more alarming is the fact that over 45 percent of Massachusetts voters supported a similar measure in 2002.
Now, even supply-siders would have trouble arguing that reducing a tax to zero can result in increased revenues. (Except that apparently the Republicans in the U.S. House of Representative do believe that about the capital gains tax, as we said in a previous article in this Digest).
But backers of the Massachusetts measure do argue, using supply-side logic, that less taxes will result in so much economic growth that no one will feel the loss of public services that would inevitably result.
Carla Howell, chairperson of the group backing the measure (and Libertarian candidate for governor in 2002) says that "In addition to giving each worker an annual average of $3,700, it will take $12.5 billion out of the hands of Beacon Hill politicians -- and put it back into the hands of the men and women who earned it. Every year. In productive, private hands this $12.5 billion a year will create hundreds of thousands of jobs in Massachusetts."
Actually, this proposal to slash state government revenue by 40 percent is so extreme that even business groups cite a report showing just how devastated infrastructure, education and other services would be if this proposal is approved.
So it seems that many states are on the verge of ruining themselves with the narcotic of supply-side tax economics. If these states fail to resist, then what? Rehabilitation is possible, but it's a long and hard road. Colorado is trying to break free of the mess it created a decade ago when taxes and revenues were strictly suppressed by the so-called "Taxpayer Bill of Rights" (TABOR) that was approved by voters. TABOR poses a serious problem given that the cost of government services sometimes increases at a rate greater than general inflation. Also, another amendment to the state's constitution requires regular increases in education spending. Reconciling these two competing demands proved impossible, and in 2005 Colorado voters temporarily suspended a significant portion of the TABOR requirement.
This year, it appears many Coloradans have finally had enough with having to deal with inadequate government services under the unrealistic TABOR requirements. Voters will have the opportunity to decide on Amendment 59, which would end the automatic refunds to taxpayers used to suppress state revenues, in favor of diverting that money toward education. This effort gives hope to those who realize that public services like schools and roads are the building blocks of a state economy, and that to have these services we have to pay for them. It also should serve as a warning to people in other states where supply-siders are promising voters that they can have their cake and eat it too.
This week Colorado Governor Bill Ritter filed a ballot initiative petition that, if passed by voters in November, would end a $300 million a year subsidy for oil and gas companies. The property tax deduction for oil companies was originally justified as a way to encourage them to support certain local measures, such as school bonds. Supporters claimed that without the tax break the industry would pay disproportionately more in taxes and thus have an incentive to work against local measures.
But
The petition would channel the $300 million savings primarily to college scholarship funding for low-income students and measures that would mitigate the impact of the oil and gas industry on wildlife, transportation and water quality. Oil and gas industry spokespersons, however, claim that companies would be forced to pass on higher prices to consumers. Ritter countered this attack, explaining that
The oil and gas industry is expected to spend about $20 million in its campaign against the initiative and supporters of the initiative will spend about $5 million. Voters will be asked to choose between continuing to subsidize a booming industry or investing money in
Colorado might permanently loosen a constitutional constraint that has caused the state on-going fiscal damage, the so-called Taxpayer Bill of Rights (TABOR).
Voters approved an amendment to their constitution enacting TABOR in 1992. TABOR limits the growth of state revenues to a combination of inflation and population growth by requiring that any revenue in excess of this limit be refunded to taxpayers. TABOR also requires that any tax increase be approved by voters. The main problem is that inflation is only a very crude measure of changes in the costs faced by state and local governments, which for the most part have outpaced inflation in the rest of the economy.
In 2000, Colorado voters complicated matters further by approving a very different measure, Amendment 23, which mandates an increase in funding for K-12 education by at least 1% plus inflation every year. This amendment was a response to the dismal state of Colorado public schools in the wake of unrealistic revenue restrictions enacted in TABOR.
Enacting both of these provisions made sense to many voters who would like to see both lower taxes and more spending on education. The problem is that the combination of TABOR and Amendment 23 serve to starve transportation, higher education and just about anything that is not K-12 education.
Now, Colorado House Speaker Andrew Romanoff, with the backing of Governor Bill Ritter, plans to unshackle the legislature from these impossible demands. His proposal, if approved by two thirds of both chambers and by the voters, would repeal Amendment 23 and the part of TABOR that requires the state to refund taxes when the revenue limit is exceeded. Fortunately, the citizens of
But one problem associated with TABOR would not be fixed under this plan: tax increases would still require voter approval. Of course, it would be better if the
Arkansas Governor Mike Beebe has called a special session starting Monday to consider a higher severance tax on natural gas. The Governor says that the tax hike will eventually raise as much as $100 million to help pay for state highways. The current level of tax was established in 1957 and is based on the volume of gas extracted. Beebe's proposal would change the tax base to market value, bringing Arkansas in line with what most states have been doing since the 1970s. Basing the tax on market value would ensure that inflation will no longer erode the value of revenues generated by the tax, which is currently providing natural gas companies with an effective tax cut each year. A 2003 ITEP study of the Arkansas natural gas tax found that if the state had imposed a 5 percent tax on the market value of natural gas in 1975 (rather than basing the tax on volume) the state would have raised $610 million between 1975 and 2001, instead of the $13 million it actually collected. For more on the state's severance tax and potential reforms read this report from Arkansas Advocates for Children and Families.
Higher severance taxes may soon be on the agenda as well in Colorado, where environmental groups and higher education advocates have banded together in support of a ballot initiative to generate $200 million in additional revenue from the oil and gas industries. The proposal would eliminate several severance tax deductions and exemptions, the most notable of which allows companies to write off 87.5 percent of their property tax bills. The revenue generated would go to fund college scholarships and renewable-energy programs, among other things.
