The Great Tax Revolt of 1994

Will anti-tax initiatives sweep the states this fall?

Two years ago, when businessman-turned political-activist Douglas Bruce launched Amendment I in Colorado, a ballot initiative requiring that all new and increased state and local taxes and debt be approved by popular vote, his political opponents waged a holy war against him. Bruce was characterized as a "terrorist" who would "lob a hand grenade into a schoolyard full of children." Defeating the proposal was said to be the moral equivalent of "fighting the Nazis at the Battle of the Bulge."

And these, mind you, were just the comments of the governor, Democrat Roy Romer.

The public-employee unions, education lobby, and bond traders were far less civil. One bond trader, fearful that the voter-approval requirement for new debt would put him out of business, even suggested that if Amendment I were adopted, the pope might be assassinated when he came to Denver, for lack of police. Despite the hyperbole, hysteria, and nearly $1 million spent to defeat the initiative (versus less than $300,000 spent by taxpayer groups in support), Amendment I was approved by 54 percent of the voters in November 1992.

It has had an immediate policy impact. Tax increases have been stopped dead in their tracks. In November 1993, one year after Amendment I's passage, Colorado voters were asked to reinstate a relatively trivial 0.2 percent tourism tax that had expired. They rejected the $11-million tax hike by a margin of 55 to 45. Last year Colorado property taxes rose by less than 1 percent--the smallest increase in 20 years. Without new revenue sources to tap easily, state government in Denver is changing the way it does business. "These days, when agencies want more funds, they are forced to cannibalize each other," says Bruce.

But the real impact of Amendment I, and the great untold political story of the year, is how rapidly this initiative is invading other states. Oklahoma and Washington voters have already joined Colorado in passing it. Similar initiatives have qualified for the November ballots in Nevada and Oregon and will likely also appear on the ballot in Florida, Missouri, Montana, and North Dakota. Grover Norquist, president of Americans for Tax Reform, which advises state taxpayer groups across the country, predicts that "the way things are going, by 1996 every state with initiative and referendum will have passed a version of the Colorado law." So far, the measure seems to command the same kind of broad-based populist appeal as term limits.

Welcome to the great tax revolt of 1994. Not since Howard Jarvis successfully spearheaded California's Proposition 13 property tax-cut initiative in 1978--and unleashed a taxpayer protest that eventually swept through more than half the states and catapulted Ronald Reagan to the White House--have there been more citizen-driven efforts to roll back taxes. Consider the wide array of anti-tax actions on tap across the country:

* This year taxpayers in 11 states, with a total population of nearly 50 million people, may be voting on some form of anti-tax or spending-restraint ballot initiative.

* In addition to voter-approval requirements for taxes, a parallel anti-tax measure gaining momentum is the idea of requiring a two-thirds vote in the legislature to raise taxes. In November 1992, 72 percent of Arizona voters approved this supermajority requirement. Similar initiatives may appear on the ballot in Montana and Nevada this year. (Significantly, Congress has this requirement reversed for Washington, D.C.: A three-fifths supermajority vote is required to cut taxes, but only a majority is necessary to raise them.)

* In June, for the first time ever, California voters rejected every bond initiative on the ballot, $6 billion worth. Those included proposals to pay for everything from schools to parks to earthquake relief to crime prevention. Reported The Wall Street Journal: "State legislators are reeling in disbelief."

* Meanwhile, almost half the states have enacted tax cuts this year. New Jersey's newly elected Gov. Christine Whitman delivered on half her promised 30 percent income tax-rate reduction; Michigan's John Engler chopped the property tax in half; and Mississippi's Kirk Fordice eliminated the state capital gains tax. Arizona's Fife Symington has cut the state income tax three years in a row and has now pledged to completely abolish the state income tax if reelected. Art Laffer's supply-side movement--a subject of widespread ridicule among the Washington intelligentsia--has never had more dedicated practitioners.

* Even prominent Democrat lawmakers have caught the tax-cutting fever. In Georgia, Gov. Zell Miller won approval of a $100-million family-income tax cut that over two years will increase exemptions for elderly residents by $2,000 and dependent children by $1,000. Meanwhile in California, Willie Brown, speaker of the assembly for more years than anyone cares to remember and perhaps the sponsor of more expensive tax hikes than any politician in American history, has suddenly discovered supply-side religion. Brown proposes a 6-percent investment tax credit as the surest way "to keep and expand jobs in California." He predicts that the tax credit will "generate additional income, property, and sales tax revenue for the state"- -and no, that's not Jack Kemp talking.

* All told, 1994 will be the first year in more than a decade that state tax burdens will actually fall.

There are several explanations for this sudden and intense taxpayer discontent. One is simply pent-up frustration with gigantic expansions of state budgets in recent years. "In the 1980s, tax dollars rolled into state treasuries in wheelbarrows, and were quickly spent," Connecticut Gov. Lowell Weicker, hardly a fiscal tightwad himself, has observed.

He's right. In the Reagan era of "greed and over-consumption," few Wall Street fat cats could match the spending binge of many state governments. Though some state spending increases were the result of federal mandates in areas such as welfare and Medicaid, frugality did not otherwise reign among the states. In Florida, the budget was $7 billion in 1980; today it's $30 billion. In 1980 Arizona had a $3-billion budget; today, it's $10 billion. Connecticut's expenditures have roughly quadrupled since 1980. Even adjusting for inflation, most states have budgets roughly twice as large as they did 15 years ago with virtually no corresponding improvement in services--indeed, public-opinion polls suggest a deterioration in schools, crime prevention, and the like. This is natural grist for a storm-the-Bastille taxpayer revolt.

Also driving the tax rebellion is an increasing recognition that the soak-the-rich tax strategy employed by many states during the past recession is shrinking state economies. A 1993 Joint Economic Committee study reports that since 1990 alone, the top 10 tax-hiking states have created zero net new jobs; the top 10 tax-cutting states gained 650,000.

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