May 08, 2006

Colorado's TABOR: If You Can't Say Anything Nice...

The shortcomings of Colorado's "Taxpayer Bill of Rights" or TABOR rules, which gutted the state's ability to adequately fund public services over the past fifteen years, have been widely and effectively documented. The state's TABOR rules forced state lawmakers to refund state tax collections that were labelled "surplus" revenues under a ludicrously broad definition of what constitutes a surplus. Even worse, some anti-tax advocates who observed the workings of TABOR (before the wheels fell off Colorado's tax system in the last few years) mistakenly saw TABOR as an example to be copied in other states. As a result, lawmakers across the nation who could be enacting constructive (and necessary) structural tax reforms are instead bickering about whether or not to enact one of these misguided revenue caps.

This is all bad, bad stuff, and the wave of negative press and analysis that has fallen on Colorado policymakers for enacting this mess is all well-deserved.

But I got one good thing to say about Colorado's TABOR: if you're a state lawmaker and you're gonna dole out "surplus" revenues, you could do a lot worse than to follow the Colorado example. Back in the good old days when TABOR was dropping suitcases full of fifties in the backyard of every Coloradan, the state was funding an Earned Income Tax Credit with TABOR money. The biggest and most progressive sales tax credit you could imagine was funded with TABOR money. These were tax cuts that offered the biggest benefits to low-income working families-- an unusually progressive step for state lawmakers anywhere in the late 1990s.

It wasn't all good, of course. Check out the Colorado Legislative Council's list of the various rebate mechanisms here to see that TABOR could also fund tax cuts for capital gains, interest and dividends.

And at the end of the day, if Colorado lawmakers thought an EITC was important enough to enact, they should have done it permanently, in a way that wasn't contingent on having "surplus" revenues. Presidents Reagan and Clinton both saw a generous EITC as a vital tax incentive for working families below the poverty line-- not as something to do with whatever extra cash you've got lying around at the end of the fiscal year. The Bell Policy Institute gets this exactly right in their call for a permanent Colorado EITC.

So I lied. I don't really have anything good to say about TABOR-- this is actually a slam on an unintended consequence of the November 2004 ballot changes that helped fix TABOR's flaws. The November 2004 changes definitely reduced the damage done to the state's budget each year, by putting a moratorium on TABOR rebates for the next five years. And the state will likely be marginally better equipped to adequately fund services now as a result. But Colorado lawmakers should remember that in doing so, they've pulled the rug out from under working Colorado families who depended on the EITC. Incorporating the best tax-cutting provisions from the TABOR rules as a permanent part of the Colorado tax system could be a smart, and progressive, move.


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