C olorado’s tax and spending limits have imposed the most effective constraints on the growth of government in the country. But those tax and spending limits are under attack in Colorado, just as they once were in California. Do we really want to follow California’s disastrous abandonment of fiscal discipline?
The Golden State’s GANN Amendment, a precursor of TABOR, limited the growth of state revenue and spending to the sum of inflation and population growth. In the late 1980s, the California legislature abandoned the GANN Amendment. The rest is history.
Over the last two decades without GANN, state spending in California increased much more rapidly than personal income. To sustain the higher level of spending, taxes were increased to one of the highest levels in the country. Despite the higher tax burden, the state incurred a structural deficit that required even higher levels of debt. California created one of the worst business tax environments in the country. Business investment, jobs and population left the state for other states with better tax climates. In short, California has experienced retardation in economic growth over the last 20 years.
Shortly after California abandoned the GANN Amendment, Colorado voters passed TABOR. It also limits the rate of growth of state revenue and spending to the sum of inflation and population growth.
The TABOR Amendment has worked much the way it was intended, allowing Colorado citizens to decide how much government they want and are willing to pay for. If any jurisdiction wants to spend surplus revenue, or increase taxes or debt, it must have voter approval.
Many statewide ballot measures have been presented to Colorado voters since TABOR was enacted. Two of the six ballot measures seeking approval to spend surplus revenue were passed, and four were defeated. Eight ballot measures proposing tax increases were introduced, but only one of these measures passed. Of the four property tax measures introduced, two providing property tax relief to specific groups passed; two measures proposing property tax increases were defeated.
At the local level, however, many more spending or tax increases have been approved, usually because they were tied to specific local government programs to which the voters decided to give extra funds.
Critics often incorrectly argue that TABOR forced the state to cut spending. The reality is that state spending in Colorado has grown at roughly the rate in the private economy. From 1993 to 2007 real per capita state spending grew 28 percent, while per capita GDP grew 30 percent.
With an effective tax and spending limit in place Colorado has been able to lower tax burdens, creating one of the best business tax climates in the country. Over the period since TABOR was passed Colorado has experienced one of the highest rates of economic growth in the nation, while California has experienced retardation in economic growth.
States that impose an effective tax and spending limit, and that pursue prudent fiscal policies, create a better business tax climate compared to states that pursue profligate fiscal policies in the absence of effective tax and spending limits. Critics who argue that state spending should not be constrained by tax and spending limits are really arguing that government should grow more rapidly than the private sector.
Politicians and special interest groups routinely attack TABOR because it doesn’t give them carte blanche authority to tax and spend. In Colorado, we are fortunate to have our TABOR amendment. It strengthens fiscal rules and policies conducive to economic growth and prosperity, and prevents the kind of fiscal debacle occurring in California.
Barry Poulson is a senior fellow in fiscal policy at the Independence Institute in Golden.