A serious effort is underway in Colorado to bypass the effective tax and spending controls imposed by the Taxpayer’s Bill of Rights (TABOR) and permanently increase the size of the state government. TABOR limits how fast state tax revenues can grow by requiring that the state refund taxes collected over the limit to the taxpayers. Therefore, TABOR also, in effect, limits spending. This has kept the burden of state government low and has led to a stronger state economy.
But TABOR is under attack. Elected officials have placed Referendum C on the ballot for this fall, asking Colorado citizens to let the legislature keep (and spend) $3 billion in surplus taxes over TABOR limits instead of refunding those revenues to the taxpayers. As voters ponder this referendum, it is helpful to examine why TABOR was necessary and why it should be retained.
Colorado voters passed TABOR in 1992 to end the undisciplined spending and tax increases of the 1980s, which increased the effective state income tax rate by 15 percent and the gasoline tax by 214 percent. Chart 1 shows how effective TABOR has been in controlling spending. Before TABOR, state spending increased dramatically in relation to taxpayers’ ability to pay, even briefly surpassing the national average. After TABOR, the burden of government declined and Colorado’s competitiveness with the rest of the nation improved.
One of the fundamental reasons to enact revenue and spending limits is to protect taxpayers from constantly rising demands on their pocketbooks. This in turn fosters a better environment for economic growth. Government can still grow, but at a slow and predictable rate. Elected officials must then make honest, conscious decisions about where to direct resources across all state programs.
This means putting an end to the mentality of spending freely in the good years and raising taxes to cover those expenditures in the bad years-something that is as vital from a personal perspective for families trying to provide for their needs as it is from an economic perspective. TABOR has served that purpose well, effectively protecting both Colorado families and the state economy from the ill effects of increasing taxes and government spending.
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High taxes harm economic performance. Continue reading