This is Bal­lot Watch. Today is the third in the series of arti­cles on the upcom­ing bal­lot ini­tia­tives and some key local elec­tions. Some of these will cover top­ics in com­mon with mul­ti­ple states, while oth­ers will look at a state level.

Tax­a­tion is one of the most con­tro­ver­sial top­ics in pol­i­tics. In those states allow­ing for some degree of direct democ­racy in the form of pop­u­larly voted ini­tia­tives, this makes tax­a­tion one of the most com­mon top­ics on the bal­lots. This year is no excep­tion. Seven states have tax­a­tion ini­tia­tives up for a vote this November.

Arkansas: No Roads Scholars

Arkansas has two tax ini­tia­tives on tap this fall.

Issue 1 looks to fund state roads through a five-​​cent increase in the tax on diesel fuel. The state sum­mary reads as follows:

An act to estab­lish an addi­tional tax on dis­til­late spe­cial fuel for the improve­ment of Arkansas state roads and high­ways; to autho­rize the Arkansas State High­way Com­mis­sion to issue state of Arkansas Fed­eral High­way Grant Antic­i­pa­tion and Tax rev­enue bonds for the pur­poses of con­struct­ing and ren­o­vat­ing roads and high­ways for the cit­i­zens of the state of Arkansas; Autho­riz­ing that the repay­ment of bonds be guar­an­teed by the full faith and credit of the state; pre­scrib­ing the terms and con­di­tions of the issuance of bonds; pro­vid­ing for a statewide elec­tion on the ques­tion of levy­ing the addi­tional tax on dis­til­late spe­cial fuel and issu­ing bonds; declar­ing an emer­gency; and for other purposes.

Tax­ing auto­mo­bile fuel to pay for roads is a time-​​tested tra­di­tion. In many respects, it can be viewed as a user fee, rather than a tax, since one pays, to a large degree, based on the amount of road one uses. It is, of course, an imper­fect met­ric; a Prius will pay far less per mile than will an Escalade. But the fuel taxes were born in an era when it was entirely infea­si­ble to mea­sure how many miles within a geo­graphic area a per­son was driving.

Today, it’s tech­ni­cally fea­si­ble to mea­sure actual road usage, through GPS devices, but peo­ple have legit­i­mate con­cerns about gov­ern­ment being able to track their move­ments. So we’re left with the imper­fect, but good enough, fuel taxes.

Fuel taxes have another imper­fec­tion, though. They are almost exclu­sively levied as a mon­e­tary amount per gal­lon. This means that, as the cost of road main­te­nance rises, the rev­enues gen­er­ated from the fuel taxes don’t increase to keep up. Over time, the trans­porta­tion trust funds end up with short­falls, and the gov­ern­ment has lit­tle choice but to return to the vot­ers for another increase. A fuel tax levied as a per­cent­age of the pre-​​tax pump price would do a great deal to address this shortfall.

In the mean­time, Arkansas vot­ers have to decide on a five-​​cent-​​per-​​gallon tax instead. Pre­dictably, truck­ers and energy com­pa­nies oppose the mea­sure. The Arkansas Munic­i­pal League, a coali­tion of local gov­ern­ments, sup­ports it.

Issue 2 would levy a half-​​cent sales tax to fund trans­porta­tion infra­struc­ture in the state. The bal­lot lan­guage reads as follows:

FOR a pro­posed con­sti­tu­tional amend­ment to levy a tem­po­rary sales and use tax of one-​​half per­cent (0.5%) for state high­ways and bridges, county roads, bridges and other sur­face trans­porta­tion, and city streets, bridges and other sur­face trans­porta­tion, with the state’s por­tion to secure State of Arkansas Gen­eral Oblig­a­tion Four-​​Lane High­way Con­struc­tion and Improve­ment Bonds in the total prin­ci­pal amount not to exceed $1,300,000,000 for the pur­pose of con­struct­ing and improv­ing four-​​lane high­ways in the State of Arkansas, pre­scrib­ing the terms and con­di­tions for the issuance of such bonds which will mature and be paid in full in approx­i­mately ten (10) years, which pay­ment in full shall ter­mi­nate the tem­po­rary sales and use tax, describ­ing the sources of repay­ment of the bonds and per­ma­nently ded­i­cat­ing one cent (1¢) per gal­lon of the pro­ceeds derived from the exist­ing motor fuel and dis­til­late fuel taxes to the State Aid Street Fund.

AGAINST a pro­posed con­sti­tu­tional amend­ment to levy a tem­po­rary sales and use tax of one-​​half per­cent (0.5%) for state high­ways and bridges, county roads, bridges and other sur­face trans­porta­tion, and city streets, bridges and other sur­face trans­porta­tion, with the state’s por­tion to secure State of Arkansas Gen­eral Oblig­a­tion Four-​​Lane High­way Con­struc­tion and Improve­ment Bonds in the total prin­ci­pal amount not to exceed $1,300,000,000 for the pur­pose of con­struct­ing and improv­ing four-​​lane high­ways in the State of Arkansas, pre­scrib­ing the terms and con­di­tions for the issuance of such bonds which will mature and be paid in full in approx­i­mately ten (10) years, which pay­ment in full shall ter­mi­nate the tem­po­rary sales and use tax, describ­ing the sources of repay­ment of the bonds and per­ma­nently ded­i­cat­ing one cent (1¢) per gal­lon of the pro­ceeds derived from the exist­ing motor fuel and dis­til­late fuel taxes to the State Aid Street Fund.

Ded­i­cat­ing a por­tion of sales taxes to trans­porta­tion is more like a real tax and less like a user fee. Unsur­pris­ingly, this ini­tia­tive has polled with sig­nif­i­cant oppo­si­tion. Res­i­dents of Arkansas are not in the mood for any gen­eral tax increases. The diesel tax could pass, since a minor­ity of vot­ers would be directly affected…but I sus­pect even that will fail.

But this high­lights a seri­ous issue that is bub­bling up across the nation. Much of our infra­struc­ture has been funded through sig­nif­i­cant sub­si­dies com­ing from Wash­ing­ton. As those funds dimin­ish from fed­eral bud­get cuts, the states are increas­ingly deal­ing with short­falls. And they are try­ing to push those short­falls onto the coun­ties and cities.

It’s an inter­est­ing shift, since it is exactly the oppo­site of what hap­pened in the late 1970s, begin­ning with California’s Propo­si­tion 13, which severely restricted the abil­ity of cities and coun­ties in Cal­i­for­nia to col­lect taxes from their res­i­dents, forc­ing the state to make up the short­falls, which they did through cap­i­tal flow­ing from the nation’s cap­i­tal. Speak­ing of which…

Cal­i­for­nia: Son of 1978?

Isn’t it strange how things come full cir­cle? Gov­er­nor Jerry Brown served when Propo­si­tion 13 was passed in 1978. He is back in the same office today. And, as he did in the 1970s, he has been push­ing for tax increases.

Unlike much of his first term, when he didn’t have to con­tend with the strict lim­i­ta­tions placed by Propo­si­tion 13, he now must come to the vot­ers in order to enact a tax increase. His ini­tia­tive, Propo­si­tion 30, would:

  • Increase the state’s sales tax by a quarter-​​point, to 7.5 percent.
  • Cre­ate three new income tax brack­ets for a seven-​​year period, at $250,000 (10.3 per­cent mar­ginal rate), $300,000 (11.3 per­cent mar­ginal rate), and $500,000 (12.3 per­cent mar­ginal rate).

The bal­lot sum­mary reads as follows:

Increases per­sonal income tax on annual earn­ings over $250,000 for seven years.

  • Increases sales and use tax by ¼ cent for four years.
  • Allo­cates tem­po­rary tax rev­enues 89% to K–12 schools and 11% to com­mu­nity colleges.
  • Bars use of funds for admin­is­tra­tive costs, but pro­vides local school gov­ern­ing boards dis­cre­tion to decide, in open meet­ings and sub­ject to annual audit, how funds are to be spent.
  • Guar­an­tees fund­ing for pub­lic safety ser­vices realigned from state to local governments.

Unsur­pris­ingly, sup­port­ers include the state Demo­c­ra­tic Party, and gov­ern­ment employee orga­ni­za­tions. And, also unsur­pris­ingly, oppo­nents include the state Repub­li­can Party, and anti-​​tax organizations.

Pro­po­nents point to the funds being used for schools, as that tends to be a win­ning argu­ment for tax increases in Cal­i­for­nia. Oppo­nents argue that it will reduce tax rev­enues, by dri­ving mil­lion­aires out of the state entirely.

Propo­si­tion 38, a com­pet­ing tax mea­sure, would increase income taxes at a pro­gres­sive rate of increase, from 0.4 per­cent to 2.2 per­cent, but for a period of 12 years. All of the increase is explic­itly ded­i­cated to child­hood edu­ca­tion, except for 30 per­cent of the increase for the first four years, which would be ded­i­cated to pay­ing down state debt from pre­vi­ous bond issues.

Many ini­tia­tive experts believe that hav­ing a sec­ond income-​​tax ini­tia­tive on the bal­lot makes it less likely that either will pass. Polls from the spring of this year sug­gest that they are cor­rect. In fact, there is suf­fi­cient evi­dence of mul­ti­ple com­pet­ing ini­tia­tives on the bal­lot doom­ing all of them to fail­ure that busi­ness PACs have flooded pre­vi­ous Cal­i­for­nia bal­lots with com­pet­ing ini­tia­tives solely with the intent of caus­ing all of them (espe­cially the one to which they oppose) to fail.

In this case, the goal was not to cause both to fail, but the impact may well prove to be the same.

Propo­si­tion 39 is a par­tic­u­larly con­tro­ver­sial tax mea­sure. Cur­rently, Cal­i­for­nia busi­nesses have the option of choos­ing between two dif­fer­ent for­mu­lae in deter­min­ing their tax lia­bil­ity. One is based on the pay­roll and assets within Cal­i­for­nia, while the other is based on the per­cent­age of sales in Cal­i­for­nia. The upshot is that busi­nesses have cho­sen to main­tain pay­roll and assets out­side the state so that they can use the more favor­able terms of the payroll/​asset for­mula to pay less. Propo­si­tion 39 would elim­i­nate the payroll/​asset for­mula, and instead require all busi­nesses to pay based on the per­cent­age of sales in California.

The state’s bal­lot sum­mary reads as follows:

Requires mul­ti­state busi­nesses to cal­cu­late their Cal­i­for­nia income tax lia­bil­ity based on the per­cent­age of their sales in California.

  • Repeals exist­ing law giv­ing mul­ti­state busi­nesses an option to choose a tax lia­bil­ity for­mula that pro­vides favor­able tax treat­ment for busi­nesses with prop­erty and pay­roll out­side California.
  • Ded­i­cates $550 mil­lion annu­ally for five years from antic­i­pated increase in rev­enue for the pur­pose of fund­ing projects that cre­ate energy effi­ciency and clean energy jobs in California.

Should Propo­si­tion 39 pass, it could well incent com­pa­nies to move assets and employ­ees into the state, since it elim­i­nates the exist­ing incen­tives to move them out of the state. Oppo­nents point to the increased taxes as a force for decreas­ing employ­ment due to smaller profit mar­gins. The lone poll from early July shows weak sup­port for the initiative.

Cal­i­for­nia vot­ers have vac­il­lated in sup­port for tax increases. Fac­tors that increase sup­port include a pro­gres­sive appli­ca­tion of the tax, ded­i­cated use of the funds, and pro­ceeds going toward chil­dren, the elderly, and vet­er­ans. These ini­tia­tives have some of those fac­tors, which will help them gar­ner sup­port. On the other hand, the econ­omy remains some­what weak, and vot­ers — even in Cal­i­for­nia — are reluc­tant to pass tax increases dur­ing weak eco­nomic times.

Mis­souri: Smoke Another One for the Kids

No, this one isn’t about mar­i­juana. Mis­souri is ask­ing if vot­ers want to raise tobacco taxes to fund edu­ca­tion. The bal­lot title reads as follows:

Shall Mis­souri law be amended to:

  • cre­ate the Health and Edu­ca­tion Trust Fund with pro­ceeds of a tax of $0.0365 per cig­a­rette and 25% of the manufacturer’s invoice price for roll-​​your-​​own tobacco and 15% for other tobacco products;
  • use Fund pro­ceeds to reduce and pre­vent tobacco use and for ele­men­tary, sec­ondary, col­lege, and uni­ver­sity pub­lic school fund­ing; and
  • increase the amount that cer­tain tobacco prod­uct man­u­fac­tur­ers must main­tain in their escrow accounts, to pay judg­ments or set­tle­ments, before any funds in escrow can be refunded to the tobacco prod­uct man­u­fac­turer and cre­ate bond­ing require­ments for these manufacturers?

Tobacco has been the easy tax for all of the non-​​tobacco-​​producing states. In this case, it would increase the per-​​pack tax from 17 cents to 90 cents. Note, too, that it increases the amount that “cer­tain tobacco prod­uct man­u­fac­tur­ers must main­tain in their escrow accounts”. These spe­cific man­u­fac­tur­ers are the “off-​​brand” com­pa­nies, which has led them to oppose the ini­tia­tive on the grounds that it sti­fles com­pe­ti­tion. On the other hand, the big com­pa­nies already have large escrow accounts in place for judg­ments and/​or set­tle­ments, so in that regard it puts them on a more level play­ing field.

I haven’t been able to find much infor­ma­tion on the amount of pub­lic sup­port, but ini­tia­tives rais­ing taxes on tobacco tend to pass pretty easily.

North Car­olina: Tarheel TABOR

North Car­olina has two tax ini­tia­tives on the bal­lot, but nei­ther are to raise taxes.

First is a con­sti­tu­tional amend­ment requir­ing a 60 per­cent leg­isla­tive super­ma­jor­ity to raise taxes. I am opposed to asym­met­ri­cal laws of this sort. If one wishes to have a super­ma­jor­ity to raise taxes, one should sim­i­larly require a super­ma­jor­ity to lower taxes. To do oth­er­wise is an admis­sion that one is on the los­ing side of the argument.

The sec­ond is a Tax­payer Bill of Rights con­sti­tu­tional amend­ment, which reads as follows:

Con­sti­tu­tional amend­ment to limit the Gen­eral Fund expen­di­tures for each fis­cal year to an amount that does not exceed the pre­vi­ous year’s Gen­eral Fund expen­di­ture limit increased by a per­cent­age rate that equals the fis­cal growth fac­tor and to pro­vide that the base fis­cal year for the Gen­eral Fund expen­di­ture limit shall be the total autho­rized Gen­eral Fund bud­get for the fis­cal year begin­ning July 1, 2012, increased by the fis­cal growth fac­tor. That base­line shall be used to deter­mine the Gen­eral Fund expen­di­ture limit for the fis­cal year begin­ning July 1, 2013, which will then be used to deter­mine the Gen­eral Fund expen­di­ture limit for suc­ceed­ing fis­cal years.

I can’t find any polling that has cov­ered these ini­tia­tives, so it’s hard to say how they will play out. His­tor­i­cally, ini­tia­tives like the super­ma­jor­ity con­sti­tu­tional amend­ment tend to pass; we’ve seen it in Cal­i­for­nia, Wash­ing­ton, and Col­orado. Sim­i­larly, the Col­orado Tax­pay­ers Bill of Rights proved to be an easy sale. That said, the West has more of a lib­er­tar­ian bent than the East. Will Tarheels prove to have more in com­mon with the Rock­ies than we pre­vi­ously thought?

New Hamp­shire: Live Tax-​​Free or Die

New Hamp­shire has a con­sti­tu­tional amend­ment to ban increases in per­sonal income taxes. Cur­rently, the Gran­ite State is the only state in the north­east to have no per­sonal income tax. There are no efforts under­way to insti­tute a per­sonal income tax, but Repub­li­can state House Speaker William O’Brien doesn’t want New Hamp­shirites tak­ing that for gran­ite. He cospon­sored this con­sti­tu­tional amend­ment, which states:

No new tax shall be levied, directly or indi­rectly, upon a person’s income, from what­ever source it is derived.

Oppo­nents are rightly con­cerned that the text is too broad. Can a tax levied indi­rectly upon a person’s income include a sales tax? Or a prop­erty tax? And what, exactly, con­sti­tutes a “new” tax? New Hamp­shire already taxes gam­bling win­nings, div­i­dends, and inter­est. Could they be expanded to cover other forms of income with­out being “new” taxes?

And per­haps the vague word­ing was inten­tional. Maybe O’Brien really does want to pre­vent any and all tax increases.

In any case, 67 per­cent of the vot­ers must approve any con­sti­tu­tional amend­ments in New Hamp­shire, so this amend­ment has a good hur­dle to over­come. This will be an inter­est­ing one to watch.

South Dakota: Rush­more Large Projects?

Speak­ing of gran­ite, we have Mount Rushmore’s home of South Dakota. A recently passed law in the Rush­more State would ded­i­cate 22 per­cent of contractor-​​excise taxes to a “large project fund”, effec­tive Jan­u­ary 1, 2013. But South Dakota law allows leg­is­la­tors to refer to the vot­ers a law that they oppose. In this case, Democ­rats in the leg­is­la­ture opposed the law, which, accord­ing to the offi­cial bal­lot lan­guage would trans­fer those 22 per­cent of contractor-​​excise taxes:

from the state gen­eral fund to the Large Project Devel­op­ment Fund. The South Dakota Board of Eco­nomic Devel­op­ment would use Large Project Devel­op­ment Fund monies to pro­vide grants for the con­struc­tion of large eco­nomic devel­op­ment projects within the state. To be eli­gi­ble, a project must have a cost exceed­ing $5 mil­lion. Exam­ples of eli­gi­ble projects include lab­o­ra­to­ries and facil­i­ties for test­ing, man­u­fac­tur­ing, power gen­er­a­tion, power trans­mis­sion, agri­cul­tural pro­cess­ing, and wind energy. Exam­ples of inel­i­gi­ble projects include retail estab­lish­ments; res­i­den­tial hous­ing; and facil­i­ties for lodg­ing, health care ser­vices and the rais­ing or feed­ing of livestock.

Thus, the bal­lot will have Referred Law 14. Repub­li­can Gov­er­nor Den­nis Dau­gaard was among those behind the new law, and nat­u­rally he opposes the referendum.

The main argu­ment against the LPDF is a lack of over­sight. In the past, sim­i­lar pro­grams in South Dakota have turned into give­aways for politically-​​connected busi­nesses. The lack of over­sight in this new law makes it easy to have more of the same. Pro­po­nents, as one might expect, are pro­mot­ing the prospects of these large projects turn­ing into big job growth opportunities.

South Dakota is, from a national view, a mighty red state. But look­ing at it more closely, it’s much more of the Barry Gold­wa­ter type than of the Rock­e­feller or Strom Thur­mond types. That makes the out­come of this ref­er­en­dum far from certain.

Wash­ing­ton: Aye, Man!

Tim Eyman is well known to Wash­ing­to­ni­ans for his anti-​​tax ini­tia­tives. The for­mer bar owner changed his career to pro­fes­sional ini­tia­tive writer (I’m not kid­ding) after his first two ini­tia­tives — I-​​200 in 1998, which pro­hib­ited affir­ma­tive action in pub­lic works; and I-​​695, which cut the vehi­cle reg­is­tra­tion fees and required voter approval for all future tax increases — both passed. Both times, he got a sub­stan­tial amount of press, which allowed him to stop run­ning a bar and switch to liv­ing off of polit­i­cal donations.

Since then, he has had at least one ini­tia­tive per year on the bal­lot, with the excep­tions of 2005, when he didn’t sub­mit any, and 2006, when he sub­mit­ted two that failed to qual­ify for the ballot.

This year, November’s bal­lot has his I-​​1195, which would require two-​​thirds of leg­is­la­tors to approve all tax increases. It’s not the first time he has tried this. I-​​960 did the same thing in 2007, but it was repealed by the state leg­is­la­ture two years later (in Wash­ing­ton, the leg­is­la­ture can repeal any ini­tia­tive by sim­ple major­ity after two years). He tried again in 2010 with I-​​1033, which was passed by vot­ers but over­turned by the state Supreme Court. So here we are with his “third time’s a charm” I-​​1195.

If the past is any indi­ca­tion, the ini­tia­tive will pass. Again. But it remains to be seen whether the limit will pass the courts.

(Thanks to WA7th for his con­tri­bu­tion to this section.)

There are no par­tic­u­lar com­mon threads among these tax ini­tia­tives. Most are reflec­tions of ini­tia­tives from past elec­tions in other states. It seems likely, though, that this year is a year of oppo­si­tion to tax increases, and favor­able to spend­ing restric­tions. One might con­clude that this is Good News!!! for Mitt Rom­ney!!! But it seems that it would be far bet­ter news for Mr. Generic Repub­li­can than for the man on the ballot.

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