March 24, 2004

As Amended... It's Got Problems

The proposed Taxpayers Bill of Rights amendment for the Tennessee state constitution has been rewritten by its sponsor, and while the new version may have a better chance to pass through the legislature, that will be because the new has greatly weakened the protections the proposed Taxpayers Bill of Rights would give Tennesseans against higher taxes and out-of-control government spending. It has two major weaknesses that absolutely must be addressed.

Blake Wylie has posted a PDF of the new version of the bill here. The original version is here.

Weakness Number 1:
1. It no longer establishes a formula for calculation the maximum growth of government spending in a given fiscal year. The original version established a specific formula based on the inflation rate and population growth, as defined by the language of the amendment - but the weakened version now simply says the cap on spending growth is to be based on

the total state tax revenue expenditures for the fiscal year in which this amendment is ratified plus the estimated rate of growth of the state's economy, as defined by law, for each fiscal year following ratification of this amendment plus the amount of any duly authorized TABOR cap exceptions.

This merely replicates a major weakness of the current spending cap in the Tennessee constitution, the "Copeland Cap" enacted in 1978, which has failed miserably.

Under the Copeland Cap, the legislature currently is prohibited from increasing spending faster than the growth rate of the economy "as defined by law," unless they vote to exceed it. So each year they do a little legislative Kabuki dance in which they adopt an official "estimate" of the growth rate of the economy that is, as "defined by law," based on a statistic chosen because it allows for maximum growth of spending.

And, for 11 of the past 19 years, they followed that with an encore: a vote to break even that cap and spend even more money. Since 1985, the Tennessee legislature has broken the Copeland Cap on spending by a cumulative of $3.1 billion in just the first year of each busted-cap budget. The growth formula the legislature adopted as per the Copeland amendment allowed for state spending to grow 5.5 percent per year over the last 19 years. The budget-busters on Capital Hill have instead increased spending by 7.3 percent per year.

The only difference, then, is that the Copeland Cap could be broken by a simple majority vote, while Bryson's amendment would raise the bar to require a two-thirds majority vote.

Weakness Number 2:
The new version of the proposed Taxpayers Bill of Rights amendment says:

Any law imposing a new state tax or increasing the rate of any existing tax must be approved in advance of implementation by a majority of voters participating in a statewide referendum, unless the fiscal impact of the law will be revenue-neutral relative to overall state tax revenue collections

A strength of the original version of Bryson's amendment was that any new tax had to be voted on, even if it was part of a revenue neutral tax reform plan. One reason that was a strength - if and when the day comes back around that the pro-income tax forces in Tennessee try again to create a state income tax, they would be forced to craft a reform package that would appeal to the majority of voters.

Indeed, one of the primary positives of a Taxpayers Bill of Rights is how it will re-engage the public in discussions about public policy priorities, taxes and spending. But that can't happen if we continue to allow the legislature to break the spending cap without getting permission in a referendum, if we continue to allow the legislature to define the spending-growth formula on terms favorable to its desire to spend, and we continue to allow the legislature a loophole to impose taxes without a referendum.

Bryson's original Taxpayers Bill of Rights proposal meant Tennesseans could not be saddled with an income tax without approving it in a referendum. It also created a way for those who favor an income tax to more easily pass one through the legislature, as a ballot question. The new version of Bryson's amendment continues the current scenario in which a legislature can pass an income tax over the people's objection, even though it violates the state constitution, if the legislature believes it has finally stacked the state Supreme Court with enough pro-income tax judges who will overturn three past unanimous rulings.

I think I know why Sen. Bryson altered his amendment - he wants to pass it, and opponents say the revenue growth formula was too rigid and stingy. And the proposed amendment faces an uncertain future in the Senate Finance, Ways and Means Committee, where few of the 11 senators are thought to support the Taxpayers Bill of Rights concept.

But he has gone too far to appease them.

A good and effective Taxpayers Bill of Rights will take politics out of the calculation of the economy's growth rate and make it impossible for the legislature to play the kinds of games with revenue and growth estimates that the legislature has been playing for years. You know how it has worked in recent years - the (previous) governor and his cronies deliberately overestimate revenues, budget that much to spend, and then, when revenues come in less than the estimate, they blamed the tax code instead of their bought-and-paid-for state economist/income tax shill and demanded a tax increase to cover the "shortfall."

Without a fixed formula for calculating how much more the legislature can tax and spend each year before they have to ask voters permission, the Taxpayers Bill of Rights Sen. Bryson is proposing will have not much more positive impact than the Copeland Cap. In fact, it may be worse - as, if it were to pass the legislature and be adopted into the constitution by voters and then fail to restrain spending, six years of effort will have been wasted, the public's confidence in their ability to affect positive change will be damaged - and future attempts to amend the constitution with a real Taxpayers Bill of Rights will be viewed with skepticism, cynicism or indifference.

That would be even worse than the excessive spending and taxation that would be almost certain to continue even if this current version of the proposed Taxpayers Bill of Rights becomes law.

Perhaps the best we can hope for now is that this weak version of the proposed amendment has been weakened enough to get it passed the Senate Finance Committee – and that it can be strengthened at later stages of the legislative process.