Ballot Watch: Taxes
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.
- Could rise of alternative fuel vehicles change the way fuel is taxed? (metrowestdailynews.com)