Where Term Limits Lead To Tax Cuts

During the early 1990s, term limits emerged as one of the hottest issues in American politics. Frustrated by a slow economy, high taxes, and unresponsive elected officials, many voters thought that term limits would be a good way to inject some new blood into Congress and state legislatures. Indeed, the term limits movement enjoyed a great deal of success during that period of time as 16 states passed some form of term limits between 1990 and 1994.

In recent years, many of these term limits have quietly gone into effect at the state level. We can now begin to assess their effects. Many proponents believe that term limits would improve state fiscal responsibility in two ways. First, the presence of term limits would improve the behavior of current state legislators. Limiting the amount of time that individuals could remain in the state legislature would theoretically cause state legislators to place less value on getting reelected. They would become more likely to place the broad interests of the state ahead of the parochial interests of their constituents and therefore be less likely to vote for wasteful pork projects.

Second, term limits would result in a continual stream of new people entering the legislature. The stereotypical long-standing committee chairman, adept at using his power to benefit his own constituents at the expense of taxpayers, would simply cease to exist. Additionally, the presence of term limits would likely change the outlook of those running for elective office. Many of these new elected officials would be citizen legislators, not seeking a career in politics, but simply desiring to serve their fellow citizens for a few years before returning to civilian life.

The year 2000 is an apt time to explore both of these theories. In six states, term limits went into effect in 2000. In these states, a set of incumbent legislators were about to leave office, but had not actually been replaced. Meanwhile, in four other states term limits had already succeeded in replacing an older generation of legislators with a new set of lawmakers. These four states could provide insights into the behavior of these new elected officials.

Looking at data on state tax reductions in 2000 provided by the National Conference of State Legislators, we see that states where term limits went into effect in the year 2000 were actually less likely to reduce taxes than other states. Only half of the states where term limits went into effect in the year 2000 lowered their taxes as opposed to 62 percent of states nationally. Additionally, only one of these six states enacted a tax cut whose magnitude exceeded the national average. In these states term limits did little to alter the behavior of those currently serving in elective office.

However, as we examine the four states that had enacted term limits prior to 2000 a different story emerges. All four of these states reduced the tax burden on their residents. California’s tax reduction of $1.3 billion was, in dollar terms, the largest tax cut in the 50 states. Maine reduced the tax burden on its residents by 3.8 percent, the largest reduction in percentage terms among New England States. Similarly, Colorado’s tax reduction of 3.4 percent was the largest among Rocky Mountain states. Finally, Oregon’s tax cut of $7 million is small in comparison to those of other states, but significant given Oregon’s spendthrift reputation.

The current year has provided even more evidence that states with term limits are taking steps toward fiscal responsibility. This spring the Montana state House, which just received an influx of new members because of term limits, passed a Tax and Expenditure Limitation (TEL) bill. If enacted into law, this TEL would be one of the three most stringent in the country. Similarly structured TELs in Washington state and Colorado have proven to be very effective at limiting expenditures in their respective states. In fact, Colorado’s TEL has forced the state to refund over $2.3 billion to the taxpayers between 1997 and 2000. What is even more intriguing, however, is that a majority of members in Montana’s state House willingly supported a restriction on own their power to tax and spend. The TELs enacted in Washington and Colorado were both passed by citizen initiatives.

Important lessons about term limits can be drawn from both the survey of state tax reductions in 2000 and the passage of a strong TEL by Montana’s state House in 2001. Turnover in state legislators is healthy, and the new legislators brought in by term limits are likely to be more fiscally responsible than their predecessors. Advocates of limited government should not wait until the next economic slowdown to promote such a worthwhile cause.

Michael New is a research assistant and a data analyst for the Cato Institute’s Center for Representative Government.