April 2012 Brief: Volume 19, Number 12
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TABOR: A Pro-Growth Solution for Iowa
by John Hendrickson
Across the nation, Governors and state Legislators are confronted with the task of implementing sound economic policies that will both create jobs and attract businesses. The difficulty of this responsibility has increased in the aftermath of the weak recovery from the “Great Recession,” as unemployment remains high, and states, just as with the federal government, face tremendous fiscal challenges. Many states across the nation have led the way in restoring pro-growth economic policies that consist of tax reform, reduced spending, and reforming state government. These are the policies that are needed in order for economic growth to take place. The policy of both low taxation and spending is a blueprint for economic success.
In examining specific pro-growth economic policies, policymakers in Iowa should consider a Taxpayer’s Bill of Rights measure or TABOR. Colorado was the first state to implement a TABOR provision, which was adopted by voters in 1992 in response to high levels of spending and taxation. The purpose of TABOR was to bring spending and taxes under control by requiring voter approval. Under TABOR, state spending was slowed to the rate of population growth and inflation, and it brought more accountability to government. Although voters have reformed TABOR, the measure has provided the most aggressive tax and spending limitation measure in the nation.
The state Legislature in Iowa is currently faced with the challenge of implementing both tax and spending reform. A TABOR measure would be a pro-growth policy provision if implemented. The TABOR provision in Colorado was passed by a citizen initiative, but Iowa does not have the initiative or referendum. Any effort to get a TABOR amendment added to Iowa’s Constitution would have to go through the legislative process. Currently, the Iowa House is considering two constitutional amendments to limit spending and taxes. These proposed amendments would place limits on spending as well as require a three-fifths majority vote of the entire Legislature to revise both income and sales taxes as well as a three-fifths vote to create a new tax.
The Tax Foundation, using government finance data from the U.S. Census Bureau, demonstrates that a TABOR provision in Iowa would have lowered state spending. Using the “TABOR Calculator” from the Tax Foundation, actual spending in Iowa from 1981 to 2009, adjusted for inflation, was $241.8 billion. If Iowa had enacted a TABOR measure in 1980, spending from 1981 to 2009 would have been $163 billion, or $78.8 billion less. From 1991 to 2009, Iowa spent $177.9 billion, and if TABOR existed in the 1990s, spending would have been reduced to $135 billion, or $42.9 billion less. Overall, a TABOR provision, if part of Iowa law, would have contained state spending and thus benefited the economy and taxpayers.
As policymakers in Iowa debate a variety of policy ideas to bring about economic growth while honoring a prudent use of taxpayer dollars, a TABOR provision should be considered.
A TABOR provision would bring more accountability to spending and tax policy in Iowa and allow taxpayers to have more responsibility in holding the Legislature accountable. Although TABOR is an excellent policy idea, the Legislature should also consider other pro-growth policy solutions.
Some of these ideas include priority-based budgeting, tax reform, spending reform, eliminating unnecessary regulations, and implementing free-market reforms. Tax reform ideas such as across-the-board tax cuts in the supply-side tradition would be a good policy solution. Several states have implemented or are considering sound tax reform ideas. During the last session, the Legislature in Iowa considered a 20 percent across-the-board income-tax cut and cutting the 12 percent corporate tax in half, both of which would create a strong signal for economic growth. Some states are also considering phasing out their state income taxes altogether, because they are witnessing the economic growth of states that have already terminated their state income taxes. Texas, as an example, has had an impressive record of economic growth using sound economic policies. It appears that many states are pushing hard to implement supply-side economic policies.
The battle for pro-growth economic and fiscal policies will not be an easy process, as demonstrated by the massive debates occurring in states such as Wisconsin and Ohio. Governors such as Scott Walker (R-WI), John Kasich (R-OH), Rick Scott (R-FL), and Chris Christie (R-NJ) are leading the way in implementing sound economic policy reforms to bring about not just economic growth, but also the restoration of fiscal discipline. In the end, this is a battle of political philosophy between those who believe in constitutional limited-government as symbolized by President Ronald Reagan versus the progressive statist model symbolized by the policies of President Barack Obama. As the authors of the recent edition of Rich States, Poor States wrote, “the principles for prosperity are simple and timeless: promote economic freedom. Do this by keeping taxes low, operating based on a lean and efficient budget that neither wastes money nor provides unwarranted subsidies, and minimizing regulation.”
 Nicholas A. Kasprak, “TABOR interactive calculator,” Tax Foundation, Washington, D.C., 2012, <http://interactive.taxfoundation.org/tabor/> accessed on February 2, 2012.
Public Interest Institute's Policy Study, "TABOR: A Pro-Growth Solution for Iowa,” can be viewed at www.LimitedGovernment.org.
John Hendrickson is a Research Analyst with Public Interest Institute, Mount Pleasant, Iowa. Contact him at Public.Interest.Institute@LimitedGovernment.org.
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