The Great Tax Revolt of 1994

Will anti-tax initiatives sweep the states this fall?

Stephen Moore & Dean Stansel from the October 1994 issue

(Page 3 of 3)

Florida's legislature itself is attempting to scuttle the Tax Cap initiatives. They placed their own spending cap--a much weaker one, excluding several key areas of state spending--on the November ballot. The legislators even tried to install a "poison pill" provision into their initiative that would allow it to supersede any other tax limit approved by the voters. But thanks in part to a Tax Cap Committee-organized phone blitz on Tallahassee, that provision was dropped.

A more imminent threat to the Tax Cap Amendments is State Attorney General Bob Butterworth, who is challenging the legality of the measures before the Florida Supreme Court. He argues that the wording of the ballots is confusing and that they effectively deal with more than one subject. (One of the four amendments sponsored by Tax Cap is specifically designed to allow a citizen-sponsored ballot amendment to deal with more than one subject when the state's taxing power is concerned.) The court appears to be a huge hurdle: Judges have struck down three of the last four Florida ballot initiatives on technical grounds.

Another common tactic employed by opponents of anti-tax measures is to frighten the public about the alleged dire fiscal consequences of passing them. The Missouri Education Association has organized and funded a front group called "Citizens to Protect Missouri's Future" to defeat the state's tax and spending limitation initiative known as the Hancock II Amendment. The group complains that if the amendment passes, University of Missouri tuitions will double, thousands of government employees will be laid off, prisons will shut down, hardened criminals will be turned loose on the streets to prey on the public, and-- horror of horrors--$4.5 billion of free federal highway aid will have to be sent back to Washington.

To bolster their point about the devastating impact that tax-limitation measures can have on state governments, opponents often point to California's Proposition 13. Prop. 13--the granddaddy of citizen tax- limitation initiatives--rolled back local property taxes to 1 percent of assessed value, limited assessment increases to the lower of 2 percent or the annual inflation rate, and required two-thirds voter approval for new local taxes and a two-thirds legislative majority for new or increased state taxes. A Sacramento Bee editorial captured the essence of the attacks on Prop. 13: "There is almost nothing in the state that hasn't been affected by Prop. 13 for the worse," the newspaper stated.

Similar stories have appeared nationally in TheNew York Times Magazine and Money magazine. The Money article, titled "The Tax Revolt that Wrecked California," was crammed with sorrowful tales of a tax revolt run amok. Wrote Richard Reeves: "Fifteen years later, the lessons of Prop. 13 read like cliches: There's no free lunch; you get what you pay for. Inevitably, as revenues fell, spending and critical public services were cut. In California, those cuts have led to crises in education, medical care, and public safety. They have triggered a civil war pitting the old against the young, longtime residents against new, whites against blacks and browns, haves against have-nots." For some reason Reeves was unable to find a connection between Proposition 13 and the recent earthquakes.

California taxpayers no doubt only wish that Prop. 13 had been half as effective in rolling back government as Reeves suggests. Joel Fox, president of the Howard Jarvis Taxpayer Foundation, notes that property tax revenue has been climbing by about 10 percent a year for a decade and the California budget has tripled from $15 billion to $54 billion a year since 1978, when Prop. 13 rocked the nation. State and local governments in California have many problems these days, but being starved for revenue is surely not one of them. (See "Pushing the Limit," November 1993.) And perhaps the citizens are the best judges of whether their state has been ruined by Prop. 13: Opinion polls still show that if it were voted on today, Prop. 13 would pass with the same two-thirds majority it did 15 years ago.

Oddly enough, considering the avalanche of criticism in the media about the allegedly draconian effects of Prop. 13, some skeptics oppose these tax limits for the opposite reason: that they have little fiscal impact one way or the other. These critics point to the multitude of methods politicians have invented to evade tax and spending limits. For example, most of these measures cap only the "general fund" budget, typically about 40 percent of the state budget. That provides a major loophole for politicians wanting to increase spending and revenue.

Perhaps the most blatant end run around a tax and spending limit occurred recently in Connecticut. In 1992 nearly 80 percent of Connecticut voters approved an initiative limiting spending growth to the growth rate of personal income. But the state attorney general has ruled the measure inoperative until the legislature defines what "growth of personal income" and other such terms mean--which it conveniently refuses to do. While the Hartford politicians dragged their heels, Connecticut's budget expanded by 7.2 percent last year instead of the 3 percent the limitation would have allowed. Faced with a legislature that stubbornly refuses to enact a constitutional amendment approved by a huge majority of the voters, a freshman Republican state legislator and a group of taxpayers have sued the legislature for defying the state constitution. The state filed motions to dismiss the suit on the grounds that it infringed on the state's sovereign immunity and that the issue was a political matter outside the purview of the court. The court has already ruled against the state on the first motion; at press time, a decision on the second one was expected shortly.

Given opposing complaints that they have done too much and too little, what is one to conclude about the performance of tax and spending limits? Somewhere between the claim that their impact has been apocalyptic and the claim that their impact has been trivial lies the truth. Our just-released Cato Institute study compares the growth of per-capita spending and taxes in the 18 states that adopted binding tax and expenditure limits in the last tax revolt versus those that did not. We found that spending continued to grow in the tax-limit states, but at a slower pace than in other states. We also found that real per-capita taxes in states with tax limitations grew by 11.9 percent over the five years before enactment but fell by 2.8 percent over the first five years after enactment. As a result, the state tax burden per family of four in tax- expenditure limit states was $650 lower (five years after the limit was enacted) than it would have been if state tax growth had not been reversed. Admittedly, that's a far cry from the revolutionary change in state government that had been sought and promised by the promoters of measures like Prop. 13, but it is progress.

Nonetheless, taxpayer frustration with the relative inability of Prop. 13-era limits to more effectively deter the expansion of state government over the past 15 years has sparked the current anti-tax ballot strategies. And today's taxpayer groups have learned from the experiences of their predecessors. They recognize that the main cause of the ineffectiveness of Prop. 13-era limits is that they left the ultimate authority for slowing the growth of Leviathan with Leviathan itself. To address that problem, the current movement is toward measures that leave the ultimate authority with the voters. These new measures have the potential to become the most effective ironclad restraints on government expansion ever.

The latest polls suggest that most of these initiatives stand a good chance of passing. The Oregon anti- tax measure has 66 percent support; Missouri's Hancock II amendment has 82 percent support; and the Nevada and Florida voter-approval requirements both command near 90 percent support. But they are hardly done deals. The history of initiatives is that approval levels often fall off sharply as election day approaches.

Remarkably, while this citizen-driven anti-tax uprising sweeps through state capitals from Tallahassee to Carson City, Washington, D.C.'s attitude has been one of oblivious unconcern. In fact, CNN political guru William Schneider recently stated that "I see no great tax revolt out there." And he gets paid a lot of money for such opinions.

But stay tuned. This November, even Washington may be feeling the effects of the tax revolt of 1994.