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Newspaper Article

    Stop Overspending

    BY John McClaughry
    10/04/2006
    by John McClaughry on 10/4/06.

    Candidates almost unanimously report that taxes — especially education property taxes — are the single hottest state issue on this year's campaign trail. And rightly so.

    Tax Commissioner Tom Pelham has observed that Vermont's spending per pupil is third highest in the nation, our pupil-teacher ratio (10.9:1) is the lowest in the nation, and education spending is climbing at 6.6 percent a year since implementation of Act 60, even as the number of pupils has decreased by 7.7 percent.

    Thus more and more taxpayers are looking for a way to curb the tax bite that is in some cases driving them off the land they have lived on for decades. The argument for a solution is straightforward: governments collect taxes so they can spend the money. If their capacity to extract taxes is restricted, they'll have less money to spend.

    A new coalition called Stop Over Spending (SOS), led by FreedomWorks-Vermont, is forming to promote that principle in legislation. There are four parts to the SOS proposal:

    First, the SOS bill would limit the rate of inflation-adjusted growth of state taxation to the rate of growth of population. For example: In the base year the state takes in $100 in taxes. In the following year the population increases by 1 percent, and inflation is 3 percent. SOS would limit that year's tax revenues to $100 times 1.01 times 1.03, or $104.03.

    Second, SOS says that if the tax system produces more than the SOS limit, the excess is first used to fill up the three state reserve funds. Then the remainder must be promptly rebated to the taxpayers. In the example above, if the state actually took in $106 in taxes, it would have to rebate $1.97 to the taxpayers who paid it.

    Third, if the Legislature wants to increase the rate for any of 10 major taxes, including the education property tax, it must get referendum approval from the voters before the increase can take effect.

    Fourth, if the Legislature tries to sneak out from under the SOS requirement, the proposal would allow 100 citizen plaintiffs to bring suit to cut off legislative pay and benefits until the requirement is honored.

    The SOS plan does not affect municipal taxation, which is still under the control of local voters. It also restricts only the aggregate state taxation, not a specific type such as the education property tax, and it would not affect user and license fees.

    The SOS coalition also supports a related provision, sought by Governor Douglas, for a line item veto. This would allow the governor, like his counterparts in 43 other states, to veto specific items in an appropriations bill.

    In addition to the statutory version that the spenders in Montpelier could suspend by majority vote, the SOS proposal calls for a constitutional amendment embodying the same language. Similar amendments are on the November ballot in Maine, Montana, Oregon, Nebraska, Michigan and Nevada.

    Colorado is by far the most shining example of a successful SOS-type proposal. On the fourth try, in 1992, voter approval of a citizen initiative installed the Taxpayers Bill of Rights (TABOR) with 53 percent of the vote.

    Colorado now ranks near the top of states in lowest taxes collected per capita. In the 1990s it was first in per-capita income growth, third in population growth, and fifth lowest in poverty rate.

    What would a SOS tax limitation measure do for Vermont? A 2004 calculation showed that beginning in fiscal year 1998, the year that the Act 60 state property tax went into effect, population and inflation grew a combined 17 percent over five years. But major state tax revenues grew by over 23 percent. With an SOS limitation in effect, over that five-year period the state would have been required to rebate on the order of $323 million to its taxpayers.

    For every argument there is a counterargument. The counterargument to SOS, aggressively promoted by the Keep On Spending Coalition, is quite straightforward. Few tax dollars are being wasted today. If SOS were put into effect, the Legislature would be limited in its power to collect more tax dollars, and therefore unable to increase spending to meet pressing public needs. Further, putting the tax-raising question on the ballot is not acceptable, since a majority of voters are so selfish that they would likely prefer paying lower taxes than paying more to meet government's modern responsibilities.

    Very well. Let the debate begin.

    Will the 2007 Legislature pass an SOS bill and initiate an SOS constitutional amendment? It certainly will not unless Vermonters elect legislators who are more taxpayer-friendly than spending-friendly. We'll know in another month.

    John McClaughry is president of the Ethan Allen Institute (www.ethanallen.org).