Why Some Want To Change The TABOR Cap Calculation

Why Some Want To Change The TABOR Cap Calculation

We’ll start by paraphrasing the arguments made for this bill in order to help give context to the reader suddenly tossed into the middle of this issue. Proponents of the bill assert that that there are contradictions and problems with the budgeting process due to TABOR. An example given to us was that if legislators implement a new government program funded by fees (which they can do because fees are supposedly not taxes, so they are not subject to a vote of the people under TABOR), then the amount of money raised by the fees would increase the state’s revenue and would force an increase in the TABOR refund (IF we’re in a surplus position, as we are right now). Another argument made was that when the economy is strong, the state should save and invest the additional revenue (rather than refunding it). The final argument that was made was that once there is more/enough money, then the legislature will be able to make better decisions about how to best allocate that money. While we’re at it, we’ll throw in a couple of other assertions we’ve heard from other folks who want to change TABOR: TABOR refunds are meager/meaningless, and we simply need more money to [insert your own pet policy here].
What Is The Current Cap Calculation?
POL’s response to these arguments is that while, yes, there are some conflicting drivers in the state revenue/budgeting process that can be a challenge, changing/raising the revenue cap does not address those challenges but simply covers them up with the band-aid of increased revenues. If you’re bad at budgeting and hit a $ 100,000 lottery, your budget problems may go away for now but eventually they will catch up with you… just on a grander scale.
The TABOR cap as amended by Referendum C is the limit on the increase in the amount of revenue the state can keep each year. To help explain how the current TABOR cap is calculated, let’s break down TABOR in a very simplified way. The state collects taxes. Each year, the amount of taxes collected usually goes up because we have more people, inflation, and increased productivity amongst other factors. TABOR starts its calculation by asking, “How much should government grow each year?” TABOR answers, “Well, if we have 2% more people in population to govern, then it should grow just enough to govern those additional people. And, if inflation goes up 2% then the cost of government will go up 2%, so it should go up that much too. So TABOR should allow for government growth of population + inflation. In this example, 2% + 2% = 4%.”
What are those number projected by the state to be the next few years?
Projected 2019 = 4.7%
Projected 2018 = 4.6%
Projected 2017 = 3.1%
What were those numbers in prior years?
2016 = 4.4%
2015 = 4.3%
2014 = 3.3%
2013 = 5.4%
2012 = 2.0%
2011 = 1.2%
This is how much TABOR currently allows state government to “grow” every year.
So, when the state collects amounts in taxes that EXCEEDS those growth rates above, then the state must either give it back or ask permission to keep it. The state can refund the money in several ways. One way would be to give everyone a refund check. Other ways include various tax credits. Another way to give the excess money back, or keep from collecting too big of an increase, would be to reduce the tax rate (keep that in mind for later).
By the way, TABOR only applies to about 43% of the total budget. The rest of the budget is NOT limited by TABOR and consists of things like “enterprise” revenues (remember how some want to make hospital provider fees an “enterprise”?), federal funding, fees, Certificates of Participation (COPs), many districts that have permanently ‘de-Bruced”, etc.
How Would This Change the TABOR Calculation?
This bill proposes to ask the people to vote (which TABOR requires) to change the calculation of the Referendum C cap. Essentially, instead of using population growth + inflation to set the cap, this bill proposes using the five year rolling average of the people’s personal income as the cap.
Currently: Growth is limited to the rate of population growth + inflation
Proposal: Growth is limited to the rate of your income growth
So instead of tying the growth of government to the growth in the number of people being governed (and using the government) plus accounting for inflation, this bill says that the more money you make, the more government deserves to grow… simply because you made more. Your hard work, your improved efficiency, your risk-taking with your own personal capital that you turned into production, your working overtime, your second job, your raise, your promotion, your investment in education to get a better job, your personal success—that should be only the limiting factor on how much government should be allowed to grow. I call it the “pack-mule” limit. The only limit on how much government can grow is based on how much money the beasts of burden (taxpayers) can produce for it. That’s no limit at all.
The Very Point of TABOR and its Success
As for the example given in our opening segment “Why Some Want To Change The TABOR Calculation”, which revealed that adding a new government program funded by fees over here would require refunding an equal amount to the taxpayer (or, alternatively, cutting a government program over there): that is the very point of TABOR. Once the state has hit the limit to the amount of INCREASE in revenue TABOR allows based on population growth + inflation, then anything else is excess, and either something else must be trimmed to make room for a new program, or maybe the new program should wait.
The Denver Post made several noteworthy comments in their recent editorial supporting the weakening of TABOR. 1) They admitted that TABOR has made Colorado state government more efficient, 2) They admitted that Colorado state government has still managed to grow “substantially”, even with TABOR in place, and 3) They admit that after the first two years of implementation, there are projected to be no tax refunds for the foreseeable future under this new calculation. In other words, the new cap would be no cap at all.
The Post also stated that, “That growth occurred despite lawmakers reducing taxes three times. In 2001, the state’s sales tax was reduced from 3 percent to 2.9 percent. In 1999 and 2000, income tax was reduced from 5 percent to 4.75 percent and 4.63 percent, respectively.” Now that you know how TABOR works, you should be able to see through that statement. Tax RATES were reduced in order to limit the growth of tax dollar collections by the state to stay within the TABOR cap. The taxes collected were not reduced. Tax rates were cut. These were reduced to stay within the TABOR limits on growth.
POL believes that a government growth rate of 1.2%-5.4% per year, as we’ve experienced this decade, should be sufficient and that basing a growth limit on the number of people the government is here to serve plus an allowance for inflation makes sense. We also believe that changing the TABOR cap calculation to be no cap at all, but rather a vehicle for simply taking a piece of every gain that we work so hard to get is based on a premise of government entitlement. We are not pack mules. The government is here to serve the people, not the other way around.