John Locke Update / Research Brief

The real lesson from Colorado’s Taxpayer Bill of Rights

posted on in Government Reform, Spending & Taxes
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  • In the decade for which Colorado’s Taxpayer Bill of Rights was fully in effect, its economy far outperformed the national economy
  • In contrast, during the decades before and after, Colorado’s economy fell short of the nation’s
  • Also during the TABOR decade, Colorado taxpayers received more than $3 billion in refunds

In a previous piece, I addressed five major myths about Colorado’s experience with its Taxpayer Bill of Rights (TABOR) that opponents of North Carolina’s Taxpayer Bill of Rights legislation will likely present. Opponents want to present Colorado’s experience as a nightmare in warning to the Tar Heel State.

Debunking their claims showed that Colorado’s experience was not the disaster opponents portrayed, but far from it. Indeed, further examination of longer-term trends in Colorado shows that their Taxpayer Bill of Rights experience is very positive.

In short, the real lesson from Colorado’s experience is: A Taxpayer Bill of Rights works.

In a 2016 research paper published by the Independence Institute, a Colorado think tank, author Fred Holden showed just how beneficial a Taxpayer Bill of Rights has been for the state.

Entitled “Two Decades of Colorado’s Taxpayer’s Bill of Rights,” the piece provided evidence of the economic benefits enjoyed by the state when its TABOR was fully in effect.

Colorado’s TABOR “timeout”

It is important to remind readers that in 2005, Colorado suspended the spending restraints of its Taxpayer Bill of Rights courtesy of Referendum C. In my previous piece, I dispelled the myth that Referendum C was supported by a coalition of business leaders across the political spectrum, when it was actually funded by deep-pocketed special interests who benefit from government largesse.

Referendum C suspended the spending restraints put in place by the Taxpayer Bill of Rights from 2006–10, essentially allowing for state budget writers to spend as much state revenue as they desired.

Such a pause, however, does allow for comparisons to be made between the time when TABOR was fully enforced and the times it wasn’t.

Holden does just that in his paper, analyzing three decades of data. The first decade is “pre-TABOR,” the years 1983–92. The next decade is “TABOR D-1 (decade 1),” the years 1993–2002 when the Taxpayer Bill of Rights was closely adhered to. The third decade is 2003–12, or “TABOR D-2,” which includes the five years for which TABOR restraints were sidelined in its “timeout.”

This three-decade analysis including the ten-year span of TABOR restraints sandwiched by two largely unrestrained decades provides us with valuable insights.

Spending restraint means taxpayer refunds

Per its design, Colorado’s Taxpayer Bill of Rights held spending growth largely in line with population plus inflation growth. From 1993 to 2002, state spending rose a total of 85 percent, compared with a combined population plus inflation growth of 71 percent.

This period stands in stark contrast to the pre-TABOR decade, which saw spending grow by 119 percent, well over twice the 50 percent rate of population plus inflation. During years of 2003–12 that included the TABOR timeout, state spending similarly spiked by more than double the rate of population plus inflation growth (76 percent to 37 percent).

Importantly, during the Taxpayer Bill of Rights years of 1993–2002, revenue exceeding the spending restraints was returned to taxpayers. This resulted in cumulative refunds of $3.3 billion over the decade, good for more than $3,200 for a family of four.

Moreover, as Holden noted, the decade including five years of the TABOR timeout cost Colorado households in a big way. Because no refunds of excess revenue were sent, and because the unlimited budget growth for those five years resulted in a significantly larger baseline budget and thus tax burden once the timeout ended, Colorado taxpayers were deprived of nearly $10 billion’s worth of tax refunds over the decade, which would have amounted to more than $7,600 for a family of four.

Job growth

In the pre-TABOR decade, Colorado’s cumulative private-sector job growth measured 19 percent. In the following decade that featured the Taxpayer Bill of Rights, job growth was nearly double that rate, at 37.8 percent. In the second decade of TABOR that included the timeout, private-sector job growth was a dismal 4.5 percent. Of course, this final figure is dragged down by the Great Recession, but the contrast in job growth between the decades immediately prior to and during TABOR is quite telling.

Moreover, and unsurprisingly, of the three decades under comparison, only the decade featuring the Taxpayer Bill of Rights in full effect saw private sector job growth outpace government job growth in Colorado.

Personal income growth

In addition to returning billions to taxpayers, Colorado’s TABOR decade also featured per-capita income growth that far outpaced the national average, setting it apart from the other two decades.

In the TABOR decade, Colorado’s per-capita income growth was roughly 18 percent higher than the national average. Conversely, in the other two decades Colorado’s per-capita income growth merely kept pace with the national average, growing at one percent less than the U.S. average in the pre-TABOR decade and only 3 percent more during the TABOR timeout decade.

Output growth

Colorado’s economic output also thrived during the state’s strictest adherence to its Taxpayer Bill of Rights. Why is output such an important measure?

As John Chamberlain, the late economic historian, stated, “Poverty in society is overcome by productivity, and in no other way. There is no political alchemy which can transmute diminished production into increased consumption.”

Productivity gains create a greater abundance of goods and services valued by society, enabling people to satisfy more of their needs and wants. When productivity gains are stunted, the decrease in goods and services disproportionately harms the poorest. Indeed, improvements in output are the only way to lift the living standards of society’s least financially well off.

During Colorado’s TABOR decade, its per-capita gross state product (GSP) grew 78 percent, significantly exceeding the national per-capita gross domestic product (GDP) growth rate of 67 percent. Conversely, in the pre-TABOR decade, Colorado’s GSP grew by an anemic 29 percent, far short of the national GDP growth of 95 percent. And in the TABOR timeout decade, Colorado’s GSP returned to lagging behind the national output growth rate, 30 percent to 47 percent.

Conclusion

Supporters of North Carolina’s efforts to add a Taxpayer Bill of Rights amendment to the state constitution should embrace the opportunity to discuss Colorado’s experience with their Taxpayer Bill of Rights.

For starters, it would provide an opportunity to dispel some common myths opponents like to toss about. It would also highlight several areas in which Colorado’s economy outperformed national averages during the decade that adhered to TABOR spending restraints, in contrast to the decades pre-TABOR and when its restraints were suspended.

Not only did Colorado’s TABOR decade stand out in its superior relative economic performance compared with the decades before and after, but it also returned thousands of dollars to taxpaying households.

Hard-working North Carolina taxpayers deserve the same opportunity.

Brian Balfour is Senior Vice President of Research for the John Locke Foundation, where he oversees the organization’s research and analysis on a variety of issues. He previously worked for the Civitas Institute for 13 years, and has a master’s… ...

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