Colorado residents are enjoying some good times economically these days. Unemployment is down, income growth is up, and tax receipts are soaring. In fact, tax receipts grew by a whopping 13 percent in fiscal 2006. During the 1990s, Colorado taxpayers could look forward to tax relief during such times of prosperity. This is because the Colorado’s Taxpayer’s Bill of Rights (TABOR) required that all surpluses over its tight revenue limit be immediately rebated to taxpayers.
However, because TABOR’s revenue limit was suspended just two years ago by Referendum C, this year’s strong economy will be funding not tax relief, but big government. In fact data from the Office of State Planning and Budgeting indicate that the legislature appropriated over 800 million dollars above the TABOR limit in both 2006 and 2007. This means that the average Colorado taxpayer has missed out on 910 dollars in tax rebates during the past two fiscal years.
Interestingly, these missing tax rebates may present TABOR supporters with a new strategy both in Colorado and elsewhere. Since the passage of Referendum C in Colorado, proponents of TABOR-style fiscal limits have resorted to one of three strategies to defend their fiscal limits in the court of public opinion. They have either: 1) distanced their proposals from TABOR 2) placed the blame for Colorado’s earlier fiscal troubles elsewhere or 3) embraced Referendum C, saying that the goal of TABOR was to allow for more citizen participation in decisions about state fiscal policy.
All three of these strategies are problematic though. Distancing a fiscal limit from TABOR, effectively precludes TABOR proponents from claiming credit for the tax relief and the robust economic growth that occurred in Colorado during the 1990s. Similarly, there is plenty of evidence that Colorado’s budgetary pressures were caused by the September 11 economic slowdown, a severe drought, and a poorly designed education spending mandate. However, explaining this to voters unfamiliar with the nuances of Colorado fiscal policy is a difficult task. Lastly, many see TABOR as a fiscal limit, not a mechanism for increased citizen participation. Hence the passage of Referendum C was seen by many as a rejection of the TABOR limit.
However, the missing tax rebates, may give fiscal conservatives a better strategy. Government grows largely because many people enjoy the benefits of various programs, but remain blissfully unaware of the costs that they and other taxpayers are forced to bear. TABOR was successful at limiting government because the annual tax rebates brought those tradeoffs clearly into focus. Indeed, the enduring strength of TABOR is that its rebate provisions effectively turn every spending increase into a tax hike.
Now in 2010 TABOR’s revenue limit is scheduled to come back into effect, however, it seems very likely that there will be another ballot proposal to continue its suspension. . Such a proposal will of course be enthusiastically supported by politicians, unions, and the Colorado media. However, the total size of the tax increase that brought on by Referendum C will turn out to be considerably larger than what was promised back in 2005. In fact, latest projections have raised this projected tax hike from $3.7 billion to $5.3 billion. That number is likely to continue to grow in subsequent years.
This only means that the amount of missing tax rebates will continue to grow. Fiscal conservatives would do well to scrutinize the spending priorities of the Colorado state government during the next few years. After all, any tax revenue lost to waste, fraud, and inefficiency represents tax rebates that were denied to Colorado taxpayers. And a victory in 2010 might well give TABOR some new life in Colorado — and across the country.
– Michael J. New is a visiting scholar at the Cato Institute and an assistant professor at the University of Alabama.