Tax Limits: Time for TABOR in Maine

Liberals can’t shake that old tax-and-spend religion. So naturally they are mounting campaigns to defeat two citizen-initiated proposals on today’s ballot in Washington State and Maine that would set limits on the future size of government.

Question 4 in Maine, also called the Taxpayer Bill of Rights (TABOR), would limit the annual growth of government spending to the rates of inflation plus population growth and allow people to vote on any tax increases. Initiative 1033 in Washington would limit revenue growth to the inflation-plus population formula and refund excesses to residents in the form of property tax relief.

As a result of these measures, the rent-seeking public employee unions, nonprofits and businesses that profit directly from government spending are throwing millions of dollars and spreading countless lies into opposing them.  After all, where would these groups be if big government stopped filling their deep pockets with taxpayer dollars?

And while the US media are incapable of surprising us with their bias, we did not expect to find The Economist’s “Democracy in America” blog so greatly misrepresenting what’s at stake in the TABOR debate. The author of the blog, like many opponents, severely underrated the importance of Maine’s Question 4. To the contrary, TABOR actually offers a rare opportunity for the troubled Pine Tree State to position itself as an island of prosperity amidst the stagnant economic swamp in which New England states are mired.

Many foes of Question 4 use the example of TABOR in Colorado to suggest that its constitutional amendment was harmful to the state’s economy.  That assertion is  just flat-out incorrect.  These opponents also claim that Coloradans voted to suspend TABOR in 2005.  In fact, the vote was merely a temporary postponement of TABOR surplus refunds, and a close vote at that. Even with this, there was certainly never an outright suspension of TABOR.  Using this example to claim that voters regret passing TABOR is not only misleading, it also distorts reality.  

A more recent initiative, 2008’s Amendment 59, is a better indication of Coloradans’ feelings about their tax-and-expenditure limitation. Amendment 59 would have effectively eliminated TABOR, and voters categorically rejected this measure by a resounding 10 percentage points.

Also contrary to detractors of Question 4, Maine’s TABOR initiative rectifies Colorado’s “ratchet-down” effect during economic recessions. When government revenues fall in Colorado, the limit on spending growth falls accordingly.  This sets a new lower spending baseline to work from when the economy recovers. Those pushing the Maine initiative noticed this problem, which is why their plan eliminates this flaw. The solution, the Maine Budget Stabilization Fund, is designed to fill in revenue gaps during periods of recession, preventing serious disruptions in programs. Likewise, this eliminates the possibility for a “ratchet-down effect” in Maine.

Others who trash Question 4 conveniently fail to mention that Maine is a poor state and that Colorado is a very rich state.   Likewise, the most important statistic in the TABOR debate  is the difference in the private sector’s share of the economy between Colorado and Maine. The size of a state’s private sector is strongly and positively correlated with personal income per capita. In other words, when government shrinks and the private economy grows, citizens prosper.

As a result of TABOR, Colorado has the 5th-largest private sector share of the economy; Maine ranks 41st. As state government growth continues unchecked, Mainers plod along from one generation to the next, bereft of opportunities to better themselves economically. Coloradans, meanwhile, are doing better not just economically, but in other ways as well. According to the United Health Foundation’s widely-reported and comprehensive state-by-state health rankings, between 1992 (when TABOR passed) and 2008 Colorado has consistently ranked among the 20 “healthiest” states. In some years, the state even ranked in the top 10. During that period, the percentage of children in poverty has dropped faster than the national average, while high school graduation rates have not suffered any appreciable decline. Violent crime rates have gone down slightly faster than average, as have occupational fatalities.

In short, none of the inane predictions opponents made about TABOR’s passage – throngs of people left destitute, dumber kids, lawless streets, unregulated robber barons running roughshod over their employees — have come true.

Perhaps that’s one reason why 107 economists (with a small “e”) recently signed on to a statement pointing out the positive aspects of fiscal restraint on state and local governments that the big “E” Economist apparently missed. Organized by the National Taxpayers Union, the roster of distinguished professionals from academia, think tanks, and forecasting firms concluded that: “Prudent limits, which allow governments to grow only by inflation and population unless voters say otherwise, are workable and flexible tools that prevent fiscal instability and promote economic health.”

Colorado, with its robust private economy, soaring personal income, and population growth that outstrips Maine’s 7-to-1, continues to embrace TABOR as it did last November. Maine and Washington State voters would be right to embrace Question 4 and I-1033 this year.  If they do, they may very well kick-start a taxpayer revolution in other states in 2010.