The Only Safe State Spending Bet

Unsure of whether they can politically survive voting for a tax increase to pay for more spending than they presently can afford, state lawmakers are reportedly kicking around a plan to force responsibility for the hard choices onto Michigan residents. Several media reports indicate that voters may be asked to choose between one of two options: Increasing revenue through an expansion of legal gambling, or a permanent state income tax increase of as much as 10 percent.

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Like an election behind the old Iron Curtain, these "alternatives" presume the same outcome; in this case more government spending. But if lawmakers want to abdicate responsibility for making tax decisions, then they should also let taxpayers make the call on how much government spending we need. This could be done by adding a third option to any ballot proposal, in the form of a responsible cap on the growth of state spending.

The broad outlines of the rumored plan would have lawmakers "temporarily" hiking the state income tax from 3.9 percent to as high as 4.3 percent, and also approving an as yet ill-defined list of spending reforms, such as changes to public employee benefits. But along with this, legislators would send to the voters a proposal to allow slot machines at horse racing tracks. This additional gambling would reportedly generate $300 million to $500 million in new tax revenue, and if approved by voters would lead to a repeal of the income tax hike. Taxpayers who detest both tax hikes and gambling would have the unsavory choice of picking their poison.

This cagey plot would allow lawmakers to dodge responsibility for the poisoning, but do nothing to arrest the bad habits that brought it about. The ongoing gap between the actual tax revenues and spending desired by government began in 2001. Since then, per-capita spending of state tax dollars has not kept pace with inflation. But it was a far different story a few years earlier. Between the start of Proposal A’s property tax reforms in 1995 and 2001, per capita state spending from state resources increased 26.6 percent, while inflation was just 16 percent. Per capita spending growth totaled $6.5 billion more than inflation for those six years, establishing a spending pace that contributed significantly to the budget problems since then.

If taxpayers must be asked to approve more money for politicians to spend, then the request should come with a reasonable but genuine assurance that government’s spendthrift impulse will be restrained in the future. Such assurance could be a Taxpayer’s Bill of Rights, or TABOR, a constitutional amendment that would restrain annual state spending to the growth of population and inflation. This would peg the price of state government to the real world.

Colorado provides precedent for this sensible spending discipline. Voters there enacted a TABOR in 1992. From 1993 until 2005, state spending was tied to the increases in population and inflation, which provided billions of dollars in tax relief and substantially cushioned the blow when state revenues contracted following the 2001 national recession. The Tax Foundation of Washington, D.C., has estimated that without TABOR, Colorado’s spending-over-revenue "deficit" in 2002 would have ballooned from a very modest $196 million to a "Michigan-esque" $1.1 billion.

While critics howl that TABOR is too restrictive, and does not account for periods when they deem additional state spending to be necessary, Colorado taxpayers have largely disagreed. TABOR allows for voter-approved spending above the cap, but such permission was not granted for the first dozen years after 1993. It took the combination of a tough state recession and an unrelated constitutional mandate requiring education spending higher than inflation for people to open their wallets. In 2005, Colorado voters narrowly approved a five-year "time out" from TABOR’s spending restrictions, allowing government to keep an extra $5.7 billion during the period. TABOR’s big-spending detractors eventually got their pile of money, but still were upset because they had to ask for permission first.

Putting a "tax or gamble" ballot question before Michigan voters will demonstrate that lawmakers don’t trust themselves to keep state government within fiscal guardrails. If this is the case, then they should be honest enough to also hand over to taxpayers the power to set state spending parameters as well. The evidence from Colorado shows that voters can handle it responsibly.


Kenneth M. Braun is a policy analyst specializing in fiscal and budgetary issues for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.

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