I have been interested in the recent push for TABOR (Taxpayer Bill of Rights) legislation in a couple of states. Maine recently fought (and lost) for one and of course there is the case of TABOR in Colorado that was recently repealed. TABOR limits government tax revenue to a prescribed increase (such as inflation) over the prior year. There is perhaps a case that TABOR is akin to the “starve the beast” solution to government spending. This belief is that tax cuts mandated before spending cuts will necessitate the later due to the enormous budget shortfalls. As this paper is arguing, tax cuts that come before spending cuts often leads to a longer term INCREASE in government spending because voters react to the budget deficits not with supporting further government spending cuts but with voting for pro-tax and higher spending politicians. Again, this is just my opinion, TABOR proponents may have the causal effect of government budgets backwards, the problem is with spending and not taxation. A better solution is to have policies more thoughtfully and strategically plan spending reductions, such as through privatization or reducing wasteful expenditures. The point I’m trying to make is that spending needs to be cut before tax cuts. UPDATE: Ok, seems like I was a little off base earlier. I’ve looked through some other work on this and have seen that a. Colorado didn’t have the sort of revenue fluctuations due to property taxes I had earlier believed, b. total state revenue is not as inconsistent as I had previously believed. Other points where I may have been wrong have been pointed out too, thanks to all those who have shown me that. For what it’s worth, my thoughts were influenced by this WSJ article that argues the housing bubble bust has caused major headaches for state governments. As wiser men have said, one study does not an argument make. Just to be clear, my opinions do not reflect the position of the Reason Foundation. Can this be chalked up to the “I’m still new here” excuse?
Ben Dachis is a policy analyst at Reason Foundation, a nonprofit think tank advancing free minds and free markets. His research involves aviation, airport, urban land use and transportation economics and privatization.