January 28, 2005

Bredesen Falsely Claims TABOR a "Disaster" In Colorado

Tennessee Gov. Phil Bredesen has come out strongly in opposition to the proposed state constitutional amendment called the Taxpayers Bill of Rights, falsely describing a similar amendment as having been a "disaster" in Colorado.

The Knoxville News Sentinel has the story, here (free registration required).

Gov. Phil Bredesen said he is adamantly against putting a proposed "taxpayer bill of rights" into the state constitution, but he will not actively oppose an amendment to forbid gay marriage.

Questioned during an interview about proposed state constitutional amendments, the governor said he thinks popular election of the state comptroller, treasurer and secretary of state is a bad idea but is less strongly opposed to permanently banning a state income tax.

The "taxpayer bill of rights," also known by the acronym TABOR, is modeled after a provision in the Colorado Constitution. Bredesen said it is "a disaster" in that state today after "some short-term success" in prior years.

"I think the taxpayer bill of rights is a bad thing that goes to the heart of my ability to operate government day-to-day as opposed to some of the other things that are out there," he said.

Sponsored by Rep. Glen Casada and Sen. Jim Bryson, both Franklin Republicans, TABOR has also been declared a top legislative priority this year by the National Federation of Independent Business.

Casada said the proposal would limit growth in state government spending to the same annual percentage as growth in personal income of citizens and provide that any excess be first placed in a "rainy day fund" savings account. Once the account reaches 5 percent of the state budget, any further excess would go back to taxpayers in the form of tax cuts, he said.

Further, any tax increase adopted by the Legislature would require approval of voters in a statewide referendum before taking effect.

"I think it's a highly ideological bill," said Bredesen.

"That's what legislatures are for - determining how money is to be spent and responding to conditions each year," he said. "I don't think any legislature ought to abdicate that responsibility out to some fixed formula in the constitution."

Casada said the amendment is needed to "reign in state government spending" that has grown by an average of 7.6 percent over the past 10 years. The state constitution currently sets a goal of limiting growth in state spending, but that can be - and often is - bypassed by a simple majority vote of the Legislature. Tabor's cap would be mandatory.

Casada said passage of the proposal "is going to be tough." While most supporters so far are Republicans, he said "you are going to see a lot of conservative Democrats join us on this."

He also characterized as "very false" that TABOR has been a disaster in Colorado, saying that state is "number 1, 2 or 3 in wealth creation, job creation and growth of the state's economy."

"Yes, state government programs are not growing like the bureaucrats want them to grow (in Colorado). But to me that's OK as well," he said.

I have researched Colorado's TABOR extensively. It is doubtful there is anyone in the entire state of Tennessee, except perhaps TABOR amendment sponsors Casada and Bryson, who know more about it than I do. Bredesen certainly doesn't. By calling TABOR a "disaster" for Colorado, Bredesen is showing his ignorance. Unless he has studied Colorado's TABOR. Then he's just flat-out lying.

I researched the impact of Colorado's TABOR on that state's economy in the decade since it was adopted and here is what I found: Before it was adopted, Colorado and Tennessee were very similar economically. A decade later, Colorado has far surpassed Tennessee in almost every useful measure. In fact, thanks to the faster economic growth fueled by TABOR, Colorado was able increase state government spending per capita faster than Tennessee over the decade, while still reducing Coloradoan's taxes by $3 billion.

Here are some key data comparing Colorado and Tennessee, from a research paper I published in January 2003...

Because of the sluggish economy, there is no TABOR surplus in Colorado this year. In fact, less-than-expected revenue has led the state to cut its budget. The legislature planned to spend $13.8 billion but instead the governor of the Rocky Mountain state has reduced spending to $13.1 billion. That's a real spending cut of $700 million. As you know, Tennessee took the opposite approach to its similar-sized revenue shortfall this year, raising taxes by around $900 million.

Because of TABOR, Colorado's government has learned how to economize and prioritize while Tennessee's government has not. Yet Colorado's tax restraint has not hamstrung state government. In fact, Colorado has increased state spending by 72 percent, from $7.6 billion to $13.1 billion, since fiscal year 1993-94, while cutting taxes by about $3 billion over that same period. During those same years, Tennessee increased spending by 56 percent, while raising taxes about $1 billion.

From 1990 through 2000, Colorado increased per-capita state spending by 139 percent, the third-largest increase among all 50 states, while Tennessee increased per-capita spending by 76 percent.

In 1990, Colorado's government spent $2,504 per person. Tennessee spent about 50 percent more than that - $3,753 per capita. By the end of the decade, Tennessee spending per capita had risen to $6,593, and Colorado's had increased to $5,992. Tennessee state government now spends just 10 percent more per capita than does the government of Colorado.

Even though Tennessee raised taxes repeatedly during the 1990s in order to spend more, Colorado was able to increase spending faster by taxing less. If you're a fan of increased government spending, you have to be a fan of TABOR. I think that will be a key argument going forward, a useful tool to convince some moderate legislators who want to be seen as tax-cutters, but don't want to cut spending, and to convince voters who would like to pay less taxes but don't want government programs slashed. It's an easy argument to make – because the data clearly shows TABOR has been a boon to the Colorado economy. Here is some data. Remember, TABOR took effect in 1993.

From 1993 through 2000, Colorado's gross state product – the measure of the state's total economic output – rose 79 percent,11 according to the U.S. Department of Commerce's Bureau of Economic Analysis. Tennessee's rose just 49 percent.12 In 1993, Tennessee's economy was 28 percent larger than Colorado's. But by 2000 it was just 6 percent larger. From 1993 through 2001, Colorado's personal income grew 84.3 percent, compared to 54.3 percent in Tennessee.13 That's 30 percentage points difference. Such growth in Tennessee would have added another $30 billion to Tennessee's total personal income
growth – and both provided the extra revenue for and the authority for annual spending increases of 10 percent under the Copeland Cap.

Total personal income is an aggregate measure for the state and is one measure of the growth of the overall economy. Because some of that increase reflects growth in population, a better measure of real economic performance is per capita income - and there Tennessee also lags Colorado. In 1993, Coloradoans' per capita income was $22,196, some $2,655 higher than Tennessee's. By 2001, per capita income in Colorado had risen 51 percent to $33,470, while in Tennessee it had risen just 38 percent to $26,988. Tennesseans' per capita income now lags that of Coloradoans by $6,482. That's a difference of $3,827.

Here is more data:

From 1993 through 2001, the number of total full-time and part-time jobs rose 17 percent in Tennessee, but 32 percent in Colorado.

From 1993 through 2001, the total amount of compensation paid to employees in Tennessee rose 45 percent, from $69.6 billion to $100.8 billion, but 80 percent in Colorado, from $56.4 billion to $101.5 billion. That's right: in just eight years, Coloradoans as a group went from being paid $13.2 billion less per year than the people of Tennessee to making $776 million more – even though there are 1.3 million fewer Coloradoans.

Any way you slice it, Colorado's economy far out-performed Tennessee's since 1993 – the year Colorado enacted a policy of tax restraint and Tennessee did not. Colorado's Taxpayers Bill of Rights (TABOR), which took effect in 1993, created an environment of stable taxes and, indeed, tax cuts when revenue exceeds the generous TABOR limit. As a result, Colorado's economy boomed. That economic boom is reflected not only in its income statistics, but also in its population growth from 1993 through 2001 – 32 percent, compared to Tennessee's 16 percent. All of that economic growth resulted in more money for the government to spend, even as Coloradoans' taxes were cut, because low taxes spur higher economic growth. Even though TABOR forced the state of Colorado to return more than $3 billion to taxpayers rather than spend it, Colorado was still able to increase per-capita state spending by 139 percent from 1990 to 2000, the third-largest increase among all 50 states. Tennessee, with no effective cap on revenues, taxes or spending, increased per-capita spending by 76 percent from 1990-2000.

Tennessee increased taxes to fund more government spending in the 1990s, and routinely exceeded its weak constitutional cap on spending. But because higher taxes reduce economic growth, the state actually brought in less revenue than it might have under a lower-tax/higher growth strategy. In 1990, Colorado's government spent $2,504 per capita and Tennessee spent $3,753 - 50 percent more than Colorado. By the end of the decade, Tennessee was spending $6,593 per capita, just 10 percent more than Colorado, which had increased spending to $5,992 per capita. Tennessee raised taxes repeatedly during the 1990s in order to spend more, but Colorado was able to increase spending faster by taxing less.

The data overwhelmingly indicates that, by restraining spending and taxes with a Taxpayers Bill of Rights modeled after Colorado's, Tennessee could actually create a future in which taxes would be guaranteed to remain low yet state government would actually have more money to spend, all within a system that would put a premium on accountability and prioritization.

The real fiscal disaster is Tennessee, where the legislature and every governor from Lamar Alexander up to and including Phil Bredesen have routinely flouted the state constitution's weak cap on the annual growth of government spending, resulting in the state spending billions of dollars more than the growth of the state's economy can keep pace with. In May 2004, Bredesen approved a budget that busted the spending growth cap by $105 million. And that's just the first-year cost of the excess spending. Because each year's budget increase is based on the previous year's budget, Bredesen's cap-busting spending will cost Tennessee taxpayers $1 billion - the Bredesen Billion - over the next decade.

That's the real record of the self-professed "fiscal conservative" who opposes having the constitution of Tennessee protect the people of Tennessee from excessive taxes and unaffordable government budgets.