CON- TABOR was designed to cut taxes and reduce the size of state and local government. Passing Referendum C will result in a major and unnecessary tax increase and thus violates the spirit of TABOR.
LOEVY- TABOR, or the Taxpayers Bill of Rights, was added to the Colorado Constitution in 1992. It has three major provisions:
1. Citizens will vote on all increases in tax rates.
2. The growth of government will be limited to the rate of population growth and inflation. When money coming into state and local government exceeds these limits, the extra money must be refunded to taxpayers.
3. Taxpayers can vote to let government keep the excess money that comes in above the rates of population growth and inflation.
Referendum C is provided for in the provision of TABOR that permits citizens to vote to let government keep the money that comes in above population growth rates and inflation rates. Thus Referendum C is an integral part of TABOR and does not violate its spirit or operation.
2. TAX REFUNDS:
PRO- Passing Referendum C will not take away your state tax refund.
CON- Passing Referendum C will take away your state tax refund.
LOEVY- Two different Colorado state tax refunds are involved, and some of the voter confusion about them may have been generated intentionally. The two different tax refunds are:
1. The refund on the taxpayers' state income tax return, which is filed each April 15 along with the U.S. income tax return. The vote on Referendum C will not affect this tax refund.
2. The refund which taxpayers could get if tax income to state and local government exceeds population growth and inflation. This is the tax refund which Referendum C will change. If C passes, the state will not have to refund an estimated $3.7 billion in already-collected taxes and can keep the money for higher education, transportation, and health care. Letting the state keep this estimated $3.7 billion will cost the average taxpayer $516 over the next five years.
Voter confusion over these two different types of state tax refunds could be one of the major factors in whether Referendum C passes or not.
3. PASSING REFERENDUM C WILL BE A TAX INCREASE:
PRO- Adoption of Referendum C will not be an increase in income tax or sales tax rates, therefore Referendum C is not a tax increase. Citizens will be paying taxes at the same rates as before C was passed.
CON- If Referendum C passes, state government will have more of the taxpayers' money to spend, so that is a tax increase. Furthermore, when you do not return excess already-collected tax money to taxpayers, which is what will happen if Referendum C passes, that is a tax increase.
LOEVY- This is a semantic argument for which there is no correct answer. The PRO- supporters are correct that Referendum C will not increase tax rates. On the other hand, the CON- forces have a legitimate argument that letting state government keep a certain amount of previously-collected taxes is also a tax increase. Instead of thinking about this issue in terms of whether or not Referendum C is a tax increase, voters would do better to address the issue of whether or not they want Referendum C to pass and provide more state money for higher education, transportation, and health care.
4. SIZE OF THE TAX INCREASE:
PRO- Referendum C is not a tax rate increase.
CON- Referendum C will bring about "the largest tax increase in Colorado's history." -- Dick Armey, Guest Commentary, Denver Post.
LOEVY- For something to be the "largest," it must be compared to something else. The largest tax increases in Colorado history were when the state adopted a state income tax and a state sales tax. Many Coloradans pay much more in state income taxes and state sales taxes than the $100 a year that adoption of Referendum C will cost them in lost TABOR refunds.
5. THE BUDGET CRISIS IN COLORADO:
PRO- Under TABOR, state government spending in Colorado per capita has declined, mainly because the population adjustment and the inflation adjustment provided by TABOR have not kept up with population growth and inflation. The result is mounting needs for services in the state but inadequate state funds to pay for these services. State spending dropped from more than $750 per capita in 2000-2001 to only $689 per capita in 2004-2005.
CON- The State of Colorado has never had so much money to spend. The size of the total state budget increased every year from 2000-2001 to a whopping $14.03 billion in 2004-2005.
LOEVY- Two different state budgets are involved in this argument. The PRO- forces are looking at just the state's general fund, which is solely supported by state taxes. This is the portion of the state budget that is most directly affected by the limits on government growth in TABOR.
The CON- forces are looking at the total state budget, which includes the state's general fund but also has funding from the U.S. Government and other sources. It is increases in U.S. Government spending, not state spending, that make this particular state budget appear to be growing.
Here again, voters would do well not to get involved in this argument. The real issue with Referendum C is whether or not the voter would like the state of Colorado to have more money to spend out of the general fund on higher education, transportation, and health care.
6. THE RATCHET EFFECT:
PRO- The TABOR Amendment to the Colorado Constitution prohibits the state from increasing spending above a certain rate set by population growth and inflation. However, each year's growth rate in state spending is based on the previous year's state budget. During the recession that began in 2001, state spending "ratcheted down" due to reduced state tax collections during a falling economy. The major effect of Referendum C would be to allow the state to recover some of the funds it lost when the state budget was hit hard by the ratchet effect during the recession.
CON- If unrestricted by TABOR, state government spending would grow at a much faster rate than population growth and inflation. To periodically ratchet down state government spending is a necessary benefit for taxpayers.
LOEVY- The ratchet effect clearly is one of the major problems with TABOR in Colorado. It accentuates the effect of economic recessions on the state budget, preventing the state from bouncing back fast when the recession ends and income and sales tax collections start rising much faster than the growth limits imposed by TABOR, thus necessitating TABOR refunds.
Higher education, transportation, and health care have taken the major budget reductions because of TABOR and its ratchet effect. Voters would do well to ignore the ratchet effect, which is exceedingly hard to understand and explain, and address a simpler question. Do I want the state to have more money to spend on higher education, transportation, and health care?
7. REFERENDUM D:
PRO- Referendum D is coupled with Referendum C and would go into effect only if Referendum C passes. Referendum D would permit the state to borrow money for roads, schools, and state employee pension plans. The debt would be paid off with the additional funds that would flow to state government if Referendum C is adopted.
CON- The TABOR Amendment is all about cutting the size of government and the burden government spending puts on taxpayers. Referendum D is not needed because Referendum C is not needed. The total state budget continues to grow larger every year.
LOEVY- This really is a package. Those who decide to vote for Referendum C should also vote for Referendum D, and those who elect to vote against Referendum C should turn thumbs-down on Referendum D as well.
If Colorado citizens vote for Referendum C and allow state government to keep the TABOR tax refunds over the next five years, then it makes sense to borrow money and build the roads and schools right away so that they are available for citizen use right away.
Robert Loevy is a Colorado College Political Science Professor.