POLICY BRIEF FROM AMERICANS FOR TAX REFORM

Supermajority Taxpayer Protection
By Peter J. Ferrara

In this Policy Brief:

• The Basis for the TLA
• Experience with Supermajority Requirements
• Supermajority Requirements Work
• The Bottom Line
• Appendix A: Supermajority requirements at the state level
• Appendix B: Supermajority requirements are found in the following sections of the Constitution
• SUPPLIMENT: Map of Supermajority States

The U.S. House of Representatives will soon take an historic vote on the issue of taxpayer protection.  Scheduled for a floor vote in mid-April is the Tax Limitation Amendment (TLA) to the Constitution.  The amendment was introduced by Representatives Joe Barton (R-TX), John Shadegg (R-AZ), and Ralph Hall (D-TX) with 185 co-sponsors from both parties.

The TLA is simple and powerful.  It would require a supermajority of two-thirds of each house of Congress to vote approval for any tax increase before it could become law. 

Such a provision is already in effect in regard to state government in 14 states, shielding one-third of the U.S. population from unnecessary state tax increases.  In those states, the provision has proven highly effective both in protecting taxpayers and boosting the economy.  Polls and actual votes taken in referenda show the provision is highly popular with voters.

The Basis for the TLA

The amendment is urgently needed to correct a deep and powerful imbalance in our political system in favor of higher special interest spending and taxes.  Special interests seek government spending for benefits heavily concentrated on them, with taxes to pay for the spending spread broadly among everyone else.  Because of the great benefits concentrated on them, the special interests can and do spend enormous amounts of time and money lobbying for such giveaways.

But each individual taxpayer only bears a tiny part of the cost of each such giveaway.  So the taxpayer cannot devote anywhere near the same time and resources in fighting such spending.  Organizing taxpayers across the country with a small, diffuse interest in each fight is far more difficult and costly than organizing a narrow special interest seeking a great gain concentrated on them.

Consequently, special interests often ride roughshod over taxpayers, who are busy attending to their own jobs and families.  The result is runaway taxes and spending.

A classic example of this process is the $60 billion in annual federal spending on corporate welfare.  Independent economists show that these programs harm rather than advance the general public interest.  But taxpayers across the country hardly know what these programs are, let alone when they are coming up for a vote.  The special interests gaining from these programs, however, have full time lobbyists monitoring their progress every day.  When a vote approaches, you can find these corporate welfare queens camped out on Capitol Hill advancing their case, with the promise of hefty campaign contributions for those who will help.

A full analysis of this problem was developed by the public choice school of economics, led by James Buchanan, who won a Nobel Prize for this work.  So the amendment, in fact, has a strong intellectual foundation.

Before the government takes the hard earned dollars of working people by compulsion, there should be a broad consensus among the people that such a tax is needed.  That is what the TLA requires.  It shows the proper respect for the private property and earnings of taxpayers.  It provides the proper protection against the army of Washington lobbyists working for well-heeled special interests seeking taxpayer funds.

The Constitution itself provides ample precedent for such a supermajority requirement in cases where seeking a broad consensus rather than a bare majority is justified.  Indeed, such supermajorities are required in the Constitution in 10 different instances.  For example, a two-thirds vote is required to override a presidential veto, to ratify a treaty, or to expel a member of Congress.  In addition, ratification of a Constitutional amendment requires a two-thirds vote in both houses of Congress and approval by three-fourths of the states.

House and Senate rules have also long required supermajority votes in various circumstances.  For example, both the House and Senate require a two-thirds vote for suspension of any of their rules.  The Senate requires a 60 percent vote to end a filibuster.  In addition, three-fifths of the full Senate must approve a waiver of any balanced budget provision or point of order to consider legislation that would violate a budget approved by Congress.

Most pertinently, on the first day of the 104^th Congress in January, 1995, the House adopted Rule XXI, which requires a 60 percent supermajority for passage of any bill that increases taxes.

Experience with Supermajority Requirements

As previously mentioned, 14 states, covering one-third of the U.S. population,  already have supermajority requirements for state tax increases.  A two-thirds supermajority vote of the legislature is required to increase taxes in six states, including Arizona, California, Louisiana, Nevada, South Dakota, and Washington.  Arkansas, Colorado, and Oklahoma require a three-fourths vote of the legislature.  Florida and Missouri require approval by two-thirds of voters in a referendum.  Delaware, Mississippi, and Oregon require approval by three-fifths of the legislature.  Additional supermajority proposals are currently pending in 3 other states.

The Heritage Foundation conducted a study of the experience of these states with the supermajority requirement.  It found that taxes did indeed grow more slowly in the supermajority states.  State spending grew more slowly as well.  Moreover, restraining taxes and government spending benefited the economy in these states.  The economies in the supermajority states grew almost one-third faster than in other states.  In addition, employment grew about 25 percent faster in the supermajority states.

Supermajority requirements have proved to be quite popular.  In the four states where the requirements were enacted by referendum - Nevada, Oregon, South Dakota and Florida - the supermajority  proposal received over 70 percent of the vote.  A nationwide poll conducted by the Polling Company in 1997 found that 70 percent of voters would support such a provision at the federal level.

Most recently, in March 2000, the voters of California defeated an initiative (Proposition 26) that would have stripped the two-thirds supermajority requirement for issuing local general bonds and raising property taxes for school construction.  This victory for taxpayers came despite a 20-1 spending advantage by the Proposition 26 campaign over its opponents.

How Supermajority Requirements Work

The proposed amendment provides that any legislation changing the internal revenue laws would require a two-thirds majority of those voting in each house, unless the legislation "is determined at the time of adoption, in a reasonable manner provided by law, not to increase the internal revenue by more than a de minimis amount."  However, any increase in revenue resulting from the reduction of the effective rate of any tax would not be required.

So tax cuts that might improve economic performance so much that revenue actually increases would not be subject to the two-thirds requirement.  Neither would tax reform that is expected to be revenue-neutral or reduce overall taxes.  Steps toward tax reform that closed loopholes but offset that with equivalent or greater tax reductions would also not be subject to the requirement.   

Congress could also waive the requirement when a declaration of war was in effect or "when the United States is engaged in military conflict which causes an imminent and serious threat to national security and is so declared by a joint resolution." However, any tax increase adopted under such a waiver would not be effective for more than two years.

Such a supermajority requirement would be particularly valuable in securing the benefits of tax reform.  For it would protect taxpayers against Congress raising tax rates again after a flat tax was adopted and current tax loopholes closed.  By the same token, if a national sales tax was adopted to replace the income tax, it would protect taxpayers against Congress adding a new income tax on top of the sales tax.

That is why the Kemp Commission on tax reform wrote in its 1996 final report:  "The roller coaster ride of tax policy in the past two decades has fed citizen's cynicism about the possibility of real tax reform, while fueling frustration with Washington..A two-thirds supermajority vote of Congress will earn America's confidence in the longevity, predictability and stability of any new tax system." 

For these same reasons, both Majority Leader Dick Armey, the lead proponent of the flat tax, and Rep. Billy Tauzin, the lead proponent of the national sales tax, both agree that fundamental tax reform must include a two-thirds supermajority protection for taxpayers.

The Bottom Line

The bottom line is that taxes today are too high.  Federal, state and local taxes consume about 40 percent of the income of the average family.  That's more than the average family spends on food, clothing and shelter combined.  Taxpayers need the protection of a supermajority requirement for tax increases. 

Such a supermajority requirement would work just like other constitutional protections in the Bill of Rights.  The First Amendment protects a narrow majority from restricting freedom of speech or of religion.  Similarly, the proposed supermajority amendment would prevent a special interest coalition comprising a temporary, narrow majority in Congress from adding further burdens on already overtaxed families.  Only a broad consensus that tax increases were necessary would justify further infringing on the hard-earned wages and incomes of working people.

Appendix A: Supermajority requirements at the state level

Appendix B:  Supermajority requirements are found in the following sections of the Constitution