March 22, 2004

Locked In?
A Response to A Major Criticism of the Taxpayers Bill of Rights

HobbsOnline received an email from St. Louis attorney John L. Davidson, posing a reasonable question about the proposed Tennessee Taxpayers Bill of Rights. He first cited a series of stats showing that Tennessee has fewer college-educated people than Minnesota and a lower per capita income, and then asks "If you cap taxes, what are you going to cut to raise your education funding to where you don't fall further behind?"

It's a fair question - a typical criticism you will hear about the proposed Taxpayers Bill of Rights is that it will "lock" Tennessee into the bottom of the rankings in a variety of measures from education to healthcare to poverty.

In fact, you read that criticism coming from the office of Tennessee Gov. Phil Bredesen just yesterday in a story in The Tennessean:

''The governor is skeptical of these kinds of political measures,'' said Lydia Lenker, the governor's press secretary. ''It would completely undercut our ability to catch up in vital areas like education…"

First, the measure does not impact the receipt or spending of federal dollars. In Tennessee, that means the Taxpayers Bill of Rights will impact less than half of the state's overall budget. If Uncle Sam offers more money for education – as the Bush administration has done with the No Child Left Behind act, Tennessee can spend it all.

Ironically, Tennessee has failed to spend millions of dollars of federal education dollars available to it:

In Tennessee alone, more than $116 million in Federal education funds have not been spent, including nearly $43 million in No Child Left Behind Title I funding for disadvantaged students and schools that was provided by Congress from fiscal year 2000 through fiscal year 2002. The total also includes more than $33 million in unspent No Child Left Behind school improvement funds that are meant to be used to provide extra help to schools, and more than $30 million to assist children with disabilities.

Second, Colorado's experience has proven that if you reign in the growth of state taxes and state government spending, your economy grows faster. As an economy grows faster, per capita incomes rise. As per capita incomes rise, more people can afford to send their children to college, or to go to college themselves.

Since 1993, Colorado state government has operated under a Taxpayers Bill of Rights amendment, approved by voters in 1992, that limits the amount of state tax revenue that the state can keep and spend to an amount equal to the money the state took in during the last year, plus increases for population growth and inflation.

After a decade, it is clear that "capping" taxes and spending in Colorado did not keep the state from improving its educational levels. Colorado's Taxpayers Bill of Rights became law in 1993. According to the U.S. Census Department's Educational Attainment 2000 report, issued in August 2003, Colorado achieved significant gains in the percent of its over-25 population that is college educated in the 1990s.

In Colorado in 1990, 27 percent of the population aged 25 and over had at least a bachelor's degree, and 9 percent had an advanced degree. By the year 2000, that had risen to 31.7 percent having at least a bachelor's degree and 11 percent having an advanced degree.

In Tennessee in 1990, 16 percent of the population had at least a bachelor's degree and 5.4 percent had an advanced degree. By 2000, that had risen to 19.6 percent having at least a bachelor's and 6.8 percent having an advanced degree.

Critics may point out that Tennessee's percentage of college-educated adults grew faster than Colorado's in the 1990s, and that is true. But Tennessee started the 1990s at such a low level that the state had much more potential to grow in that category. In 1990, Colorado's over-25 population was already one of the most educated in the nation - its percentage of college graduates ranked below only two other states - Connecticut and Massachusetts. The statistical "law of large numbers" argues against Colorado being able to grow its percentage of college-educated adults at a higher rate than state like Tennessee, which ranked near the bottom. Nevertheless, the Taxpayers Bill of Rights impact on state finances does not appear to have hurt Colorado in this area - by the year 2000 it had passed Connecticut and now trails only Massachusetts in the percentage of its adults with college degrees.

It's worth noting that, because of Colorado's Taxpayers Bill of Rights, taxpayers in Colorado have received billions of dollars worth of tax rebates and tax rate reductions over the past 10 years - money that it is likely some have used to pay for college tuition for themselves or their children.

As I documented a year ago in this white paper, when you compare the economies of Tennessee and Colorado by a variety of measures, Colorado's economy has vastly outperformed Tennessee's ever since Colorado voters put the Taxpayers Bill of Rights into the state constitution.

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.

Beyond the dueling educational stats, Mr. Davidson's question reflects a failure to really understand the Taxpayers Bill of Rights and what it does. Pay attention...

The Taxpayers Bill of Rights does not actually "cap" taxes, it merely changes the way taxes can be raised. It requires legislators to get approval in a referendum for tax increases and new taxes.

And it does not actually "cap" the growth of spending it merely says that the legislature and governor have to ask the people what to do any extra revenue in excess of the revenue needed to fund spending above a certain allowed growth rate.

These provisions force legislators to come up with proposals that make sense and appeal to the majority of people. It also forces legislators to better communicate with the people about such weighty issues.

In Colorado, they have a Taxpayers Bill of Rights that "caps" taxes and "caps" the growth of spending, but legislators routinely ask voters for permission to break both caps, and sometimes voters say yes. In fact, a few years ago, voters in Colorado voted to approve a measure that dedicates a huge chunk of future surplus revenue (revenue over the spending growth "cap") to public K-12 education, instead of receiving it back as tax rebates that were guaranteed under the Taxpayers Bill of Rights.

Amendment 23, passed by Colorado voters in 2000, requires state funds for public elementary and secondary schools to increase each year by a set proportion. Specifically, it requires that spending on public education rise at a rate of "inflation plus one" for 10 years, and then equal to the rate of inflation thereafter. The Colorado Union of Taxpayers estimated that voters agreed to give up about $11 billion in future tax reductions over a decade in order to increasing funding for public education. That vote stands as stark evidence that those are wrong who claim a taxpayers Bill of Rights "locks" a state from raising taxes or increasing funding for education, and that voters would never vote for such a thing.

The Taxpayers Bill of Rights "cap" on tax rates and spending isn't an unbreakable cap. It is a provision that forces legislators to set priorities, spend a lot less on pork, and communicate better with voters.

You can read a lot more about it here, and in this two part column [1, 2), recent post, and this entire category of posts.