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February 2012 Policy Study, Number 12-2

   

TABOR: A Pro-Growth Solution for Iowa

by John Hendrickson

   

 

The Benefits of TABOR for Iowa

   

 

The implications of a TABOR policy would serve to benefit the economy and taxpayers of Iowa. Since Iowa does not have the initiative or referendum, implementing a TABOR provision would have to emerge from the legislative process or as a constitutional amendment. Iowa currently has a weak TEL that instructs the Legislature to limit appropriations to 99 percent of the adjusted general funds. Iowa’s fiscal health would also improve by implementing some of the priority-based budgeting reforms and significant tax reform. A TABOR Amendment to Iowa’s Constitution would be the best option for policymakers:

 

TABOR has been effective over the years in part because it was passed as an amendment rather than adopted through the legislative process. If states desire effective TELs, they should realize that constitutional taxing and spending caps tie policymakers’ hands much more effectively than rules that these policymakers adopt themselves and are free to change.[55]

 

Iowa and other states need to take into consideration the democratic process when considering a TABOR Amendment. As an example, Colorado voters approved the TABOR Amendment, but later on supported Amendment 23 and Referendum C, which reduced the effectiveness of the original TABOR provisions. The democratic process works both ways as progressives and liberals have convinced voters in Colorado to undermine TABOR, and this can be seen recently in Ohio where voters rejected Governor John Kasich’s efforts to reform labor laws and government employee pensions.

 

“TABOR continues to mandate relative fiscal responsibility in Colorado by requiring voter approval for all tax increases; however, further erosions of the rule’s tight constraint may diminish its future effectiveness.”[56] Nevertheless, a TABOR provision provides an additional check upon the Legislature by the people. “An effective TABOR also enables citizens to get the government they want and are willing to pay for,” argued Poulson. In other words, it provides more responsibility to the people to consider how much government they want and how much they will pay for it in taxes. As Poulson wrote:

 

What taxpayers have learned since Governor [President Ronald] Reagan launched the tax revolt three decades ago is that fiscal policy is too important to be left to the discretion of elected officials. The strongest bulwark against profligate fiscal policies is a fiscal constitution that imposes constraints on the power of politicians to increase the tax burden.[57]

 

And as economist Randall G. Holcombe wrote, “Certainly requiring voter approval of any new taxes or increases in existing tax rates is consistent with the American ideal of ‘no taxation without representation.’”[58]

 

Both the taxpayers and the economy of Iowa would benefit from a TABOR provision. Since Iowa’s TEL is not very aggressive in confronting spending and tax increases, a TABOR Amendment would help rein in excessive government spending and taxation or at least slow their growth. Spending is still high in Iowa and even though some progress has been made on budget reforms as noted by Auditor David Vaudt, the Legislature is still spending about $6 billion. Vaudt also warns that Iowa should not become too dependent on federal money. As Vaudt stated:

 

The State spent a total of $8.3 billion of Federal funds in Fiscal Year 2010. This represents a 69 percent increase versus Fiscal Year 2006, thanks in large part to the Federal stimulus package of 2009 and assistance related to the 2008 floods.[59]

 

“The Federal government has its own fiscal challenges, so it is both prudent and necessary for us to start planning for the inevitable Federal funding decrease we will see in the coming years,” stated Vaudt.[60] Iowa’s budget still has a long way to go in terms of reforming the gimmicks and shifting of funds, which is why priority-based budgeting is needed. House Republicans have proposed a budget for FY 2013 of $6 billion, which, as described by House Speaker Kraig Paulsen, is “a modest and conservative one percent growth.”[61] This proposal is a step in the right direction in slowing the growth of state government.

 

Providing a fiscal policy out of Des Moines that includes spending and tax reduction would be a significant stimulus for job creation as well as provide for long-term economic growth in Iowa. Implementing a TABOR would be a significant step in fostering spending and tax reduction. The Tax Foundation, using government finance data from the U.S. Census Bureau, calculates that total actual spending in Iowa from 1981 to 2009, adjusted for inflation, was $241.8 billion.[62]

 

If Iowa had enacted a TABOR measure in 1980, spending from 1981 to 2009 would have been $163 billion, or $78.8 billion in reduced spending. From 1991 to 2009, Iowa spent $177.9 billion, and if a TABOR provision existed in the 1990s spending would have been reduced to $135 billion, or $42.9 billion in reduced spending.[63] It is clear that if Iowa had a TABOR provision it would have proven fiscally sound for the state and taxpayers.

 

Even if TABOR had been enacted in 2000 it would have prevented the massive spending increases that occurred in recent years, because total actual spending between 2001 and 2009 was $91.9 billion and the TABOR limit would have contained that to $82.8 billion, thus saving the taxpayers $9.1 billion.[64] TABOR along with sound budgeting practices and low tax rates would produce significant economic results in Iowa.

 

   

 

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