by Brian Balfour
Senior Vice President of Research, John Locke Foundation
Legislators last week introduced SB 717, Taxpayer Bill of Rights. The bill would put to a vote of the people in 2022 an amendment to the state constitution that would place sensible restrictions to the annual growth rate of the state budget.
Below are five reasons North Carolina needs a Taxpayer Bill of Rights:
North Carolina has enjoyed a decade of sound, fiscally responsible budgeting courtesy of conservative legislative leadership. We are just one election away, however, from returning to the reckless spend and tax policies of the past. For instance, we should never forget the irresponsible and unsustainable 30-year spending binge liberal budget writers embarked on from 1979 to 2009.
North Carolina’s state budget – even after adjusting for inflation – more than tripled in those 30 years and grew at more than three times the rate of population growth.
A major benefit of a Taxpayer Bill of Rights is that it smooths out state budget growth over the long term, which would replace the “roller coaster” trends of the past that featured dramatic upward climbs in spending during flush economic times, only to be followed by steep drops when recession hits.
Without constraints, politicians have a tendency to spend as much revenue as possible, so during growth periods they ratchet up spending commitments which prove unsustainable when the next inevitable bust happens. The sudden budget shortfalls send legislators into a panic, and their typical solution is to raise taxes to cover the shortfall, the last thing you want to do during a recession, along with slashing teacher and other state government positions.
Rather than allow spending to ratchet up 8 or 9 percent annually during healthy economic times, a TABOR would limit these annual growth rates to a more sensible 4 percent or 5 percent in most years. The extra revenue would be set aside in a rainy day fund to fill the budget shortfall when the next recession hits. There would be less need to panic, and a reduced chance of punishing taxpayers for reckless and shortsighted spending sprees.
As my colleague Joe Coletti has pointed out, a constitutional Taxpayer Bill of Rights “could provide a larger economy, more jobs, lower taxes now, and less risk of devastating tax increases or spending cuts in the next recession.”
Because the negative impact of the taxes needed to fund government spending increases outweigh any positive from said spending, reining in spending through a TABOR would benefit North Carolina’s economy, which would especially benefit those on the margins of employment most in need of additional opportunities.
Thanks to a decade of fiscally responsible spending decisions, in which annual increases fell under what a Taxpayer Bill of Rights would have allowed, North Carolina state government was well positioned financially to weather the sharp revenue decline brought on by Gov. Cooper’s Covid shutdown.
The rainy day fund was well stocked with over a billion dollars, unspent reserves stood at $1.6 billion, and budgetary spending commitments proved sustainable thanks to the modest 16 percent cumulative spending growth over the previous 8 years. No teachers needed to be laid off, and no tax hikes were necessary.
Compare that to the onset of the 2008 recession, in which liberal spend and tax policies had ratcheted up spending a whopping 49 percent in the eight years prior, creating a $2 billion budget hole for FY 2008-9 followed by a massive $4.6 billion shortfall the following year. Thousands of teachers were laid off, and those remaining saw their salaries froze for three straight years. Desperate budget writers hiked personal, corporate and sales taxes, at a time when workers, businesses and consumers could least afford them. The tax increases no doubt prolonged North Carolina’s recovery.
Fiscal restraint on the state budget is highly popular with North Carolina voters, and has been for a long time. Polling data from 2011 showed 67% of voters support such a bill compared to just 18% opposed, good for a 3.5 to 1 margin.
Support remains strong. A March 2021 Civitas poll conducted by the John Locke Foundation found 58% support from likely voters, compared to just 17% opposition, still a very decisive 3.3 to 1 margin.