Wednesday, February 14, 2018

Do We Need a TABOR in Wyoming? Part 1

Representative Gray has brought up a very important issue in his HJ0007. Called a Taxpayer's Bill of Rights, this bill brings a constitutional feature to Wyoming that we have seen at work in Colorado since the 1990s. 

Before we get to the bill itself, let me make clear that I agree with Representative Gray on the need to put in place stronger defenses against higher taxes. As exemplified by the zombie-like lodging tax, which refuses to die and go away no matter how many times it fails, and the please-tax-my-income campaign, there is no shortage of desire among lawmakers to get their hands on more of our money. 

The Gross Receipts Reporting bill, HB0051, is another great example of tax-and-spend statism, against which we some kind of statutory or constitutional antidote.

With this in mind, Representative Gray has done a good job putting together a complex, but thoughtfully designed Taxpayer's Bill of Rights (TABOR) proposal to be added to the Wyoming constitution. Given the assumption that I think Representative Gray departed from when writing this bill, the proposal is tight and ready for prime time. 

However, I do not agree with what I perceive as the premises for the bill. Therefore, I am not in favor of this TABOR and I believe it would be a mistake to add it to the constitution.

My main point of concern is that it will be toothless. Just like TABOR in Colorado, it comes with an unintentional bypass mechanism that can render the entire mechanism ineffective. 

The key feature of the bill is good. It proposes that districts "shall have voter approval in advance" for:
(A) Any new tax, tax rate increase, mill levy above the mill levy for the prior year, valuation or assessment ratio increase for any property class, extension of an expiring tax or adoption of any tax policy directly causing a net tax revenue gain to any district; and 

(B) Except for refinancing district bonded debt at a lower interest rate or adding new employees to existing district pension plans, the creation of any multiple fiscal year direct or indirect district debt if the district does not have adequate present cash reserves pledged irrevocably and held for payments on the debt in all future years. 
So far, so good. The bill has now prevented tax hikes and new debt without voter approval. Even if it is a simple-majority approval (50 percent plus one vote) the requirement to put both higher taxes and new debt before voters will raise the bar for frivolous growth in both variables. 

The problems for HJ0007 begin with the next part, namely the exceptions. The aforementioned voter-approval rule does not apply:
(A) To an emergency tax or budget increase. An emergency shall be declared only after approval by two-thirds (2/3) vote of all members of each of the two (2) houses of the Wyoming legislature, voting separately, and signature by the governor for a state tax or budget increased or by two-thirds (2/3) of the members elected to the governing body of any other district imposing or increasing a tax. 
What constitutes an emergency? According to the bill, anything that two thirds of the legislature would define as an emergency. A budget deficit is presumably a prime example of an emergency. In other words, under this TABOR model, the legislature can circumvent the voter approval requirement for tax increases by simply agreeing - by two thirds majority - that there is an emergency deficit in the budget. 

The paragraph stipulating the exceptions continues:
Any revenue raised under this subsection which is not expended on the emergency for which it was raised shall be refunded in the fiscal year following the expiration of the emergency. An emergency tax imposed under this subsection shall be approved by the voters on the next regular election that is more than sixty (60) days following the declaration of the emergency. If the emergency is not approved under this subsection, the emergency tax shall end on the first day of the month immediately following this month the election results are reported
The purpose of this part of the exception paragraph is to put limits on what can constitute an emergency. With a designation of the emergency-tax revenue to the emergency only, there is no risk for frivolous use of this exception from voter approval of higher taxes. Right?

I disagree. What if, last year, our legislators had declared the deficit they said we had in school funding, an emergency? They could then have introduced a sales tax on services, raised the property assessment value and even introduced a gross receipts tax, all with a 2/3 legislative majority. The only difference from how the tax increases are voted on today, is that the 2/3 majority rule that applies to budget sessions, will now also apply to regular sessions. 

My understanding of the 60-day rule on voter approval for emergency taxes is that a tax increase declared and voted on in an odd-year legislative session would be approved in the following even-year election. This puts more than 18 months between the tax vote in the legislature and the election approval vote. 

Let us be a bit more crafty. Suppose CREG declares that we have a multi-year deficit ahead of us that will stretch out over three, four, maybe five years. It does not take much imagination to see how a report like that could constitute grounds for an emergency tax vote in the legislature. Here, the emergency is now declared as lasting for several years, meaning that the first regular election will take place within the ongoing emergency. 

Is it even remotely possible that voters, being told that they are in the midst of a multi-year fiscal emergency, will disapprove of an "emergency" tax? They have now approved the emergency tax, which will be in place for several years. At some point, you can simply put the emergency tax up for a vote again to convert it into a regular tax. All it takes is voters being told that "this is not even a tax hike - you are just being asked to change the status of this tax so we can permanently secure the funding of our schools."

Does this sound far-fetched? So is the thought of an income tax... er, Gross Receipts Tax. 

Again, I applaud Representative Gray for his hard work and commitment to protecting us taxpayers against big-government spenders. If he can find a way to fix the emergency loophole in his bill, his bill would stand much stronger. 

There are a couple of other issues with the bill, such as the definition of "net tax revenue gain" in the first quote above. Does this refer to static or dynamic revenue gain? What measurement method shall be used to identify it? I don't think this is a big problem for the bill, just a minor issue to consider.

Generally, a bill that is supposed to have macroeconomic implications, such as this one, should be as simple as possible. This bill does not quite meet that criterion. To some degree, this is understandable: what Representative Gray is trying to accomplish, is a whole lot more difficult than it may look like on the surface.

At the same time, a bill does not have to be this complicated to put functioning spending caps on the state budget. Tomorrow, we will take a look at an alternative approach.

1 comment:

  1. The tax legislations aren't permission they are directives with a small window for PACIFICATION of the general public and the demise of State boundaries/lines and implentation of FEMA REGIONS...