Editorials and Opinion Pieces

The Year of the Deficit

By: Michael New
Date: July 23, 2002
Word Count: 628

Deficits are everywhere this summer. This May the National Association of State Budget Officers (NASBO) projected that 45 of the 50 states would run deficits during fiscal 2002 . Currently, California is leading the pack with a deficit topping $23 billion. These shortfalls have prompted either painful tax increases or politically difficult spending reductions in nearly every state. The situation is no better at the federal level as the Bush administration is projecting a $135 billion budget deficit for the current fiscal year.

However, the situation is far different in Colorado. This year Colorado residents will enjoy a balanced budget and a $927 million dollar tax refund from surplus fiscal 2001 revenues. Why is Colorado one of the few surplus states? One reason is the leadership of Governor Bill Owens. Throughout his tenure, Governor Owens has been a staunch fiscal conservative, opposing internet taxation, and other schemes to expand the size of government.

Perhaps a better reason for Colorado's strong fiscal position is Colorado's Taxpayer Bill of Rights (TABOR), enacted by a citizen initiative in 1992. TABOR places a tight cap on state spending, limiting increases in per capita state expenditures to the inflation rate. TABOR also mandates immediate refunds of all surplus revenues. As a result, when the state collects revenues above the limit set by TABOR, Colorado taxpayers are entitled to a refund. Overall, between 1997 and 2002 Colorado has reduced taxes more than any other state, issuing annual tax rebates that have totaled over $3.2 billion.

These spending limits have prevented the economic boom from permanently increasing the size of government in Colorado. This is why Colorado is not facing the revenue shortfall that other states are currently experiencing. Furthermore, TABOR has helped fuel a statewide economic expansion. Between 1995 and 2000 Colorado ranks first among all states in Gross State Product growth and second in personal income growth.

Hopefully, the long term success of Colorado's Taxpayer Bill of Rights will change the way activists think about limitations on government. During the 1970s, tax reformers focused their efforts on reducing and limiting property taxes, with California's Proposition 13 and Massachusetts' Prop 2 1/2 being the most notable examples. These property tax limits did a fine job providing taxpayers and homeowners with some much needed short term relief.

Unfortunately, however, neither limit imposed any kind of restraint on expenditures. As a result, spending continued to rise and other taxes were eventually increased to make up for the loss in property tax revenue. For instance in the years following the passage of Proposition 13, California raised the income tax, the sales tax, and taxes on beer, wine, and cigarettes. During the early 1990s, former Governor Pete Wilson even proposed increasing taxes on snack foods. This vicious cycle of spending and taxing is the root cause of California's current fiscal mess.

Similar parallels can be drawn at the federal level as well. During the 1980s the enactment of Gramm Rudman Hollings and the persistence of deficits placed some limits on federal spending. However, during the economic expansion that took place during the 1990s federal spending soared. In fact, non-defense discretionary spending actually increased faster after the Republicans took control of Congress than it did during 1993 and 1994 when Democrats controlled both the executive and legislative branches. Had Congress exercised more fiscal restraint during the 1990s, the current economic slowdown would not be causing such large deficits.

Overall, Colorado's Taxpayer Bill or Rights is the America's most effective limitation on government. It has kept spending in check, contributed to a strong economy, and deserves a great deal of credit for Colorado's strong fiscal position. Policymakers in both the states and in Washington, D.C. would do well to follow Colorado's example.