Commentary - July 2005

Taxpayers’ Bill of Rights

Will It Work in Nevada?

by Lyle Brennan

Those who support a Taxpayers’ Bill of Rights (TABOR) talk about the "ratchet up" effect in state governments. Let’s see if it applies to Nevada. The theory says that in periods of prosperity, governments tend to increase spending to match the increase in revenues. However, when growth stalls or a recession hits and state revenues fall, governments are reluctant to cut spending. There is pressure from the beneficiaries of the spending to raise taxes to offset the budget shortfall instead of cutting back on expenses. Over time, this "ratchet up" effect results in increased government revenues (taxes) and increased spending.

All we have to do to prove this theory is at work in the Silver State is to look at what happened with the budget surplus during the last legislative session. As soon as lawmakers found they were going to have more money than planned, refunding it to the taxpayers was the last thing on their minds. It took a real effort by Sen. Bob Beers and others, combined with the threat of a taxpayers’ revolt, to force the Legislature to refund even a portion of it.

"TABOR can be understood in terms of a battle between citizens and special interests, i.e., between tax payers and tax consumers," said Barry Poulson, Ph.D., professor of economics at the University of Colorado at Boulder and a leading authority on TABOR. "Taxpayers want to limit the burden imposed by government taxation and spending. Special interests seek to preserve what they perceive to be their rights to that spending."

A total of 26 states have introduced limits to control taxes and spending, but in most of those states, these measures have been watered down by special interests until they are meaningless. The exception is Colorado, where voters passed a TABOR in 1992, amending the state constitution to: 1) limit the growth in state revenue and spending to the amount of the previous budget, plus the sum of population growth and inflation; 2) ensure surplus revenue above this amount is returned to taxpayers; and 3) require voter approval for tax increases or any weakening of the amendment’s limits. If government violates the TABOR rules, citizens can sue. As a result of this legislation, more than $3 billion in surplus revenue has been returned to Colorado taxpayers in the form of rebates or tax reductions.

When Sen. Beers introduced a TABOR bill in the Nevada Legislature during the recently concluded session, Assembly Speaker Richard Perkins called this successful Colorado initiative a "failed experiment," and others joined him in making sure the bill died a speedy death. It’s no wonder it was greeted with fear and loathing. Besides threatening the lawmakers’ power base (their ability to spend themselves into political favor), it also sends a message to government that it is the people, not the government, who should have the final say in how their money is spent. What a dangerous idea!

It also sets the stage for other government reforms, as success breeds new confidence that voters can take power into their own hands. For instance, Colorado recently set up a voucher system for education, not only for K-12, but also for higher education.

After more than 10 years of watching the TABOR law operate in Colorado through changing business cycles, one item that could be improved on is the so-called "ratchet-down" effect that occurs just after a recession. Because TABOR requires excess revenues be rebated to taxpayers, the state may have to pay out rebates before it has completely recovered from the effects of the recession, which can result in a temporary financial crunch. To correct this problem, a change can be written into Nevada’s TABOR law. A "budget stabilization fund," similar to Nevada’s existing Rainy Day Fund, can be established to set aside some surplus revenue during periods of growth to offset revenue shortfalls during "down" economic cycles. If we write this into our TABOR at the beginning, it will eliminate one of the arguments used by opponents.

Even if a TABOR for Nevada is eventually passed, we will still need to be vigilant to make sure it isn’t compromised. For example, in Colorado, the education lobby convinced voters to pass Amendment 23, which was advertised as a "revenue-neutral" proposal to allocate more money to K-12 education, but which in effect mandated more spending on K-12. There is now a constitutional conflict in Colorado between Amendment 23 and the TABOR rules. The deliberately misleading language and attempt to confuse voters should sound familiar to Nevadans who were paying attention to the last round of proposed amendments in our state.

Efforts to pass a TABOR can give taxpayers’ organizations in Nevada a new lease on life. Instead of just opposing spending measures, we can be pro-active and implement something positive. It’s certainly worth investigating. We have nothing to lose but our tax bills.

For more information about how TABOR can work for Nevada and how you can support efforts to get it on the ballot, check out this Web site: NVTABOR.com.

Lyle Brennan Publisher
COMMENTS? email: lyle@nbj.com