Ethan Allen Institute

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February 05, 2004
 

Summary: Proposal 6, introduced by Sen. Mark Shepard, would create a constitutional limitation on the amount of taxation the legislature could impose upon Vermont taxpayers.

Background: In 1974 an initiative campaign in California, strongly backed by Gov. Ronald Reagan, proposed a constitutional limit on the amount on taxation the legislature could take from taxpayers. The measure failed but became the inspiration for attempts in other states. In 1992 Colorado voters (on the fourth try) adopted a similar initiative measure. Known as the Taxpayers’ Bill of Rights (TABOR), the Colorado measure has been highly successful in restraining state spending and in producing a strong economic climate.

The Colorado TABOR applies not only to state government, but to counties, cities, school districts, and special districts as well. Its central requirement, simply, is that inflation adjusted government spending cannot grow faster than the state’s population growth. If tax revenues in a fiscal year exceed the TABOR limit, the excess cannot be spent; it must be rebated to the taxpayers. In addition, a statewide general election vote of the people is required to raise tax rates. This was tried six times in the 1990s. The voters rejected each attempt.

In a speech in 2002 Gov. Bill Owens, who was one of the few legislators to support the TABOR initiative when it passed in 1992, gave an account of the results of a decade of tax and expenditure limitation. He reported that Colorado was first in per capita income growth in the 1990s. It had the fifth lowest poverty rate among the states, and the most technology workers per thousand population of any state. Furthermore, he reported, the liberal–leaning Corporation for Enterprise Development ranked Colorado as having the best business climate in the country. Both the Milken Institute and the Progressive Policy Institute have ranked Colorado as third best state in being ready for the emerging high tech economy.

According to Americans for Tax Reform, TABOR held state government spending to a sustainable rate of growth during the 1990s, making Colorado one of five states not to have a budget crisis in 2002. From 1995-2000 Colorado led the nation in the growth of Gross State Product. Since 1993, TABOR has produced $3.2 billion in tax rebates to Colorado taxpayers.

Proposal 6: The proposed Vermont constitutional amendment varies somewhat from the much more detailed Colorado measure. It limits increases in state taxation, including the education property tax, but not user or license fees. It does not apply to lower units of government. It contains a unique remedy in case the legislature fails to carry out its responsibilities once the amendment goes into effect, in 2007. Its text reads:

The aggregate tax revenues, exclusive of user and license fees, that the state collects from its taxpayers shall not exceed the amount of revenue collected in fiscal year 2006, adjusted by the estimated growth in the state’s population and by the change in the value of the dollar in the prior calendar year.

Whenever in any fiscal year revenues exceed the limit, after filling stabilization reserve funds to not more than five percent of the estimated fund expenditures for that fiscal year, the excess revenue shall be returned promptly to the taxpayers in such manner as the general assembly shall determine.

Any act of the general assembly that includes an increase in the rates for individual income, corporate income, business machine, rooms and meals, sales and use, motor vehicle purchase and use, property transfer, land gains, telecommunications, or education property taxes shall take effect only when ratified by the voters in the next ensuing biennial general election.

Any group of one hundred voters of the state shall have standing to petition a Superior Court for a declaratory judgment that the general assembly has failed to comply adequately with the requirements of this section. If the judgment is granted, it shall be accompanied by an order of mandamus to be served upon the appropriate state official, instructing that officer to refuse to authorize or make any payment of legislative pay and allowances for which legislators may become eligible after the date of the judgment. The judgment shall remain in effect until the court determines, upon good and sufficient evidence that the requirements of this section have been met. The Superior and Supreme Courts shall expedite any action brought under this section. Any curtailment of legislative compensation pursuant to this section shall not constitute a violation of Section 61.

Arguments: The principal argument in favor of Proposal 6 is its effect, well demonstrated in Colorado, on restraining state taxation and spending, thus encouraging a stronger economic climate. The arguments against the Proposal focus on the difficulty the measure would cause the legislature in raising tax rates to increase government revenues to fund higher spending. If TABOR had been in effect in Vermont since FY98, the state would have been required to rebate approximately $323 million to taxpayers, an average of $64 million per year (assuming reserve funds were filled).

Constitutional Tax Limitation: The Taxpayers Bill of Rights