Commentary

A Super Success

The National Governor’s Association recently released a report announcing that the states are facing the worst fiscal crisis since World War II. Soaring medical costs coupled with declining tax revenues are responsible for budget deficits in nearly every state. Indeed, in recent months, sharp tax hikes in many states including New York, Pennsylvania, and Massachusetts have received a great deal of attention. However, largely unreported during this fiscal crisis has been the effectiveness of supermajority tax limits at blocking tax increases.

Indeed, during the past 10 years, supermajority tax limits have been increasing in popularity. (A supermajority is 60 votes or more out of 100.) This is partly because of a shift in strategy by anti-tax activists. During the late 1970s and early 1980s property tax limits were the favored mechanism by those seeking to reduce the growth of government. Indeed, California’s Proposition 13 and Massachusetts’ Proposition 2 ½ were among the most successful of these efforts to reduce and limit property taxes.

However, as states and localities became less reliant on property taxes, fiscal conservatives began to promote broader limitations on government, including supermajority requirements. Indeed, since the early 1990s, six states-Arizona, Oklahoma, South Dakota, Nevada, Louisiana, and Oregon-have enacted laws that require that tax increases must receive supermajority approval in both chambers of the state legislature. Furthermore, Colorado’s Taxpayer Bill of Rights (TABOR), which establishes a low limit for state budgetary growth also requires legislative supermajorities for the enactment of any tax increases.

Still, it has been difficult to determine the effectiveness of these recently enacted supermajority requirements. During the economic expansion that took place throughout the mid- to late-1990s, state coffers were flush with revenue and relatively few states were raising taxes. However, this year’s widespread budgetary shortfalls have provided plenty of evidence to demonstrate the effectiveness of supermajority tax limits.

For instance, supermajority states Colorado, Arizona, and Oregon have reduced their fiscal 2002 budgets by $554 million, $671 million, and $801 million respectively. More impressively, none of these three states enacted a single tax increase. Similarly, Nevada made modest cuts of $31million, without increasing a single tax. Another supermajority state, Louisiana was one of only a few states that actually was able to reduce taxes this year. Finally, Oklahoma cut spending by $173 million, and raised taxes by only a modest $60 million. Overall, these six supermajority states enjoyed a spending cut-to-tax-increase ratio of about 36 to 1. In comparison, the national average was approximately 1 to 1.

What is even better news for fiscal conservatives is that these fiscal limitations are causing other states to consider tax reductions. In a recent interview on Fox News, New Mexico’s incoming governor, Democrat Bill Richardson, listed tax reductions as one of his top priorities. His stated reason is because taxes in New Mexico are higher than taxes in nearby states, including Colorado and Arizona. If Arizona and Colorado did not have such effective fiscal limits in place, a tax reduction in New Mexico would be an unlikely proposition at best.

This year supermajority tax limits have demonstrated their ability to guide states toward more prudent fiscal policies. Tax increases reduce economic growth and, consequently, often generate less revenue than expected. Similarly, history indicates that politicians are often unable to resist the temptation to spend some of these promised revenues on pet projects. Conversely, spending cuts are not economically damaging. They also have the added benefit of limiting the size of government, which reduces the likelihood of deficits in the future.

With the federal government facing a deficit of its own this year, Congress would do well to follow the example of these states and enact a supermajority limit of its own.

Michael J. New is an adjunct scholar at the Cato Institute and a post-doctoral fellow at the Harvard-MIT data center.