by Brian Balfour
Senior Vice President of Research, John Locke Foundation
North Carolina legislators recently filed a bill that would enable voters to decide if a Taxpayer Bill of Rights should be added to the state constitution.
The main feature of a Taxpayer Bill of Rights is that it would limit the annual growth rate of the state budget to a rate tied to inflation plus population growth. Other provisions would require voter approval of tax increases and mandate that excess revenue collections be used to bolster the state’s Rainy Day fund and refunded back to taxpayers.
The benefits of a Taxpayer Bill of Rights are many, most notable in that it would make permanent the fiscal restraint that conservative lawmakers have exercised over the last decade. Common-sense restraints on spending can smooth out spending cycles, better prepare the state for economic downturns, and enable tax cuts to make North Carolina more competitive for investment and job growth.
According to this 2017 academic survey, 27 states featured some sort of expenditure limit for their budgets as of 2015. Of those, Colorado is typically considered to have the most restrictive, and as such it has received the most attention.
Colorado’s Taxpayer Bill of Rights (TABOR) was passed in 1992 and has received mountains of scrutiny from those opposed to any restrictions on government spending. As the North Carolina legislature debates our version of a Taxpayer Bill of Rights, we should fully expect for opponents to trot out supposed horror stories from Colorado’s experience.
The main parts of Colorado’s Taxpayer Bill of Rights are more popular now than when voters first approved it. As my colleague Joe Coletti showed in his recent report on constitutional tax and expenditure limits,
A survey conducted for the Colorado Tax Commission found 60 percent to 70 percent approval for TABOR’s provisions to limit government spending, require rebates of surplus revenue, and require voter approval for government to raise taxes, issue debt, and retain surplus revenue. Those ratios were “much higher than the majority that approved TABOR.” (Emphasis added.)
Below I debunk arguably the top five misleading claims about Colorado’s experience with its Taxpayer Bill of Rights.[i]
Did Colorado’s Taxpayer Bill of Rights cripple their economy?
Nothing could be further from the truth. As shown in the chart below, Colorado’s per-capita income growth greatly exceeded the national average after the passage of TABOR. Prior to passage of its TABOR, however, Colorado’s per-capita income growth lagged the national average.
Moreover, Colorado’s private-sector job growth rose dramatically after passage of its Taxpayer Bill of Rights:
Indeed, we can examine per-capita income growth in both Colorado and North Carolina over the past four decades for still more insight. As Coletti discussed in his study, in the 1980s, before Colorado passed Taxpayer Bill of Rights, North Carolina’s average annual per-capita income growth of 7.2 percent outpaced Colorado’s average annual rate of 6.1 percent.
That trend reversed in the 1990s, however, as Colorado saw per-capita income grow at an average annual rate of 6.9 percent, compared with 4.9 percent in North Carolina. It’s important to note that Colorado’s TABOR was passed in 1992.
And when it came to job growth, “Colorado in the 1990s under TABOR saw private employment expand at a rate of 5.1 percent per year,” wrote Coletti. “Without TABOR, North Carolina’s private sector in the 1990s grew at a lower rate than Colorado’s, adding 2.8 percent more jobs per year.”
Did its Taxpayer Bill of Rights force Colorado to continue cutting state services even as the state’s economy recovered from recession in the early 2000s?
Colorado’s general fund appropriations increased by 12 percent from fiscal year (FY) 2000-01 to FY 2004-05.
Similarly, North Carolina’s state budget – without any spending restrictions in place – grew by 13 percent during that time.
Wasn’t the Taxpayer Bill of Rights’ impact on Colorado’s public structures so bad, it led to business community leaders from across the political spectrum coming together to call for the suspension of TABOR in 2005?
This “coalition” actually – and unsurprisingly – consisted of special-interest groups that benefit from government largesse. Examining the finances behind the movement to suspend TABOR in 2005 reveals:
Following passage of its Taxpayer Bill of Rights, didn’t Colorado’s per-pupil funding in K-12 education as a share of personal income decline from 35th in the nation in 1992 to 49th in 2001?
Measuring K-12 education spending “as a share of personal income” is a misleading sleight of hand. This statistic is more a reflection of Colorado’s personal income growing at a much faster rate than the national average in the decade following the passage of its Taxpayer Bill of Rights.
Did Colorado’s Taxpayer Bill of Rights cause funding for public health initiatives to decline significantly, with Colorado falling to 50th in the nation for the share of children receiving full vaccinations by 2002?
Colorado’s ranking of 50th in the nation for children’s vaccinations refers to its 2002 ranking provided by the National Immunization Survey (NIS). Cherry-picking this one year is designed to mislead. The NIS itself explicitly states that their survey data, due to small sample size, is often prone to significant error and should be “interpreted with caution.”
In fact, when looking at other years, the 2002 measure appears to be a statistical anomaly. The 2002 children’s vaccination rate of 67.5 percent stands out in stark contrast to the 2001 rate of 75.4 percent, the 2004 rate of 77.1 percent, and the 2005 rate of 83.4 percent. To follow these numbers closely could also suggest that Colorado’s Taxpayer Bill of Rights helped increase immunization rates by nearly 20 percentage points in just three years.
A Taxpayer Bill of Rights would enshrine responsible, common-sense restraints on the growth of state government in North Carolina’s constitution. The measure is highly popular, enjoying favorability by more than a three-to-one margin among likely voters, and it compels budget writers to be more careful stewards of our tax dollars.
Opponents who would cite Colorado’s experience as a warning would be playing loose with the facts, and their big-government agenda should be ignored.
[i] It’s important to note here that it is difficult to use data spanning the entire 28 years of Colorado’s TABOR experience, in large part due to changes in the law over the years.
For instance, passed in 2000, Amendment 23 mandated that education spending grow by inflation plus 1 percent from 2001 to 2011, then by the rate of inflation after 2011. This change watered down Colorado’s expenditure limits.
Furthermore, in 2005 voters passed Referendum C to provide a “timeout” from the revenue caps for state government between 2006 and 2011, making data from those years irrelevant for evaluation.
Finally, the most telling data would be from the first decade post-TABOR anyway, as that would provide us with clear contrast in figures pre- and post-TABOR.