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2017 will be the 25th anniversary of the Taxpayer Bill of Rights (TABOR). Maybe it is time for a 25 year checkup. We should have a discussion on how it is working. Is it doing what we want as a state? If not, why not? And what can we do to fix it.
Article 10, section 20 of the Colorado Constitution (TABOR) provides that state fiscal year spending, which includes taxes and fees, cannot grow faster than the rate of inflation plus population growth. The original intent of TABOR was twofold. First, the citizens wanted a constraint on the growth of government. We did not want our government to outgrow our ability to pay for it with our sales taxes and income taxes. Secondly, we wanted to be able to vote on tax rate increases.
Has it worked? As a constraint on government, it has worked on overdrive.
In 1992 state TABOR revenue was 6.2% of Colorado personal income. By 2015, that percentage had declined to 4.6% (Personal income is the total amount that Colorado households earn and is a standard measure of the size of the economy.)
Colorado has gone from:
23rd to 40th among state per pupil spending on K-12 education.
We are now 48th in state spending on higher education.
We are now 45th in the nation in High School graduation rates.
Our spending on roads depends on a gas tax that has not increased since 1992.
During this time, in order to manage the TABOR rebate process, we decreased our state income tax from 5% to 4.63%, and our state sales tax from 3.0% to 2.9%. We also started something called the “Earned Income Tax Credit” that further decreases the net revenue from income tax in perpetuity. Yet again, in the next few budget cycles, we are up against the “excess revenue cap;” we will be forced to either reduce tax rates, or pay rebates in relatively small amounts to taxpayers—that will cause us to defund priority programs.
Is that what we wanted? Maybe. For a while. But did we really want the “ratcheting down” of the size of government to go on forever? We are spending 25% less today as a percent of our income on government. Maybe we should take a look this year and fine tune what we are doing.
Having a constraint on government and letting citizens vote on tax rate increases are still valid goals. What is wrong with TABOR is the measurement. We are using a measure—consumer inflation—which has nothing to do with the Colorado economy. When inflation is low and our economy is good, as it is now, the effect is to ratchet down the amount we spend each year. None of us would do it that way in our personal or business lives. If we are doing well, we invest in education for our children. If our business is doing well, we invest in new people or equipment. We know that you have to invest when times are good. Conversely, when times are bad we tighten our belt. Oddly enough, TABOR does not really force that on the Colorado government. If inflation were high, and our economic growth were low, TABOR would allow for growth higher than our ability to pay. That makes no sense.
Here then is what we propose. Let’s change the TABOR measurement from one based on consumer inflation to one based on personal income. We can measure the change on a three to five year rolling average and adjust the excess revenue cap accordingly. This measure will give us the ability as a state to invest when we are growing and to tighten our belt when we are not. It preserves a growth constraint on state government, but doesn’t impose a ratchet that forever shrinks services.
HB17-1187 was introduced this last Tuesday. [Ed. note: It goes to the House Finance Committee Monday afternoon.] This bill will require that the idea be on the 2017 election ballot. The right to vote on tax changes is an important part of TABOR.
Larry Crowder is a Republican state senator from Alamosa. Dan Thurlow is a Republican state representative from Grand Junction.