Colorado lawmakers must again abide by revenue limits in the state’s Taxpayer Bill of Rights constitutional amendment.
After being suspended for five years, the revenue limits in the state’s TABOR went back into effect July 1.
Voters passed the TABOR, a constitutional amendment designed to limit government tax revenues and give voters to final word on tax hikes, in 1992. In 2005 voters suspended the limits for five years.
Ironically, state revenues have fallen so far since the suspension went into effect in Fiscal Year 2006 that the new TABOR limits will have no impact on state government or taxpayers, at least for the near future, said Amy Oliver of the Colorado-based Independence Institute, which backs the TABOR limits.
Currently Below 2006 Levels
“The new TABOR baseline limit is the highest level of revenue of the last five years, which was 2006,” Oliver said. “We won’t reach those 2006 levels for years. When I was on the Long-Term Fiscal Stability Task Force last year, the state economist said we probably won’t hit that level until 2013. The fact that TABOR would be in effect is sort of meaningless because revenues are below that top number.”
The TABOR requires rebates of tax any receipts that exceed the rates of inflation and population growth. The economic downturn of 2001-2002 caused state revenues to fall, and because of the limits, revenues were not allowed to quickly rise to the pre-recession levels. This gave opponents of limited government an opening to attack TABOR for forcing cuts to government services.
Opponents of the limits put up Referendum C to suspend the revenue growth limits. They were led by a coalition of government workers and certain business interests that stood to make money from more government spending. They argued TABOR was never meant to hold down state government after a recession and found a sympathetic ear among a majority of voters.
Bolstered Economic Performance
Economics Professor Michael New of the University of Alabama has studied the Colorado TABOR and other tax and expenditure limitation proposals and noted, “In the 1990s Colorado led the country in economic growth and tax relief, and the controls of TABOR played a big part. Things went sour because of the 9-11 attacks and a severe drought in Colorado.”
New also noted that Colorado imposed a requirement that caused state education spending to rise faster than TABOR revenue limits allowed, regardless of the state’s actual revenues.
“Colorado had to spend $500 million more on education while revenue was falling, which stressed the budget. In reality, the same thing would have happened if TABOR had not been there,” New said. “Opponents of TABOR blamed the limits. The other team deserves credit for distorting the record so badly.
“On our side, we didn’t take advantage of things the way we should have to promote the benefits that Colorado had realized because of TABOR.”
“It seems like every week in Colorado we hear about a new effort to try to repeal TABOR,” said John Stephenson, state government affairs manager at the National Taxpayers Union. NTU helped organize a pro-TABOR rally at the Colorado state capital on July 13 with other state and national taxpayer organizations and state lawmakers.
“People were told they needed to relax the TABOR limits to save everything in the state budget, and look at the recent budget,” Stephenson said. “Colorado has raised taxes and expanded taxes into new areas like candy, and revenues are still down. The Referendum C folks were sorely mistaken to think it would be a savior.”
Steve Stanek ([email protected]) is a research fellow at The Heartland Institute and managing editor of Budget & Tax News.
The Good TABOR accomplished: (FY1994 –FY 2005)
- Enacted by Colorado Voters on November 3, 1992
- America’s Best and Most Effective Fiscal Limit
- Established a Low Limit for Revenue Growth and Mandated Taxpayer Rebates of Surpluses
- Resulted in $139 million in tax rebates in FY 1997
- Resulted in $563 million in tax rebates in FY 1998
- Resulted in $679 million in tax rebates in FY 1999
- Resulted in $941 million in tax rebates in FY 2000
- Resulted in $927 million in tax rebates in FY 2001
- A total of $3.2 billion in rebates to Colorado Taxpayers Between 1997 and 2001
- Colorado’s Income Tax Was Cut From 5 percent to 4.63 percent
- Colorado’s Sales Tax Was Cut From 3 percent to 2.9 percent
- During the 1990s Colorado led the country in both tax relief and economic growth
The Damage Caused by Referendum C: (FY 2006-FY2010)
- Referendum C Allowed Colorado to spend rather than rebate surplus revenues (FY06-FY10)
- Colorado Taxpayers Missed $3.6 billion in tax rebates between FY 2006 and FY 2010
- The TABOR Revenue Limit returns in FY 2011 at a higher level
- As such, Coloradans will miss out on additional $1.4 billion in rebates in FY2011and FY2012
Source: Michael New, Assistant Professor of Political Science at The University of Alabama