Election Day 2019 had no shortage of storylines, and it’s unsurprising that the pundit class is more interested in a gubernatorial upset in Kentucky or flipped chambers in Virginia than in, say, Coloradans’ rejection of an effort to weaken the state’s TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. payer Bill of Rights (TABOR). But this is the Tax Foundation, where we care a lot about taxes—and if you do too (even a little), join us for a brief review of what voters across the country had to say about taxes on November 5th.
Forgoing Income Taxes Is Still Popular
Surprising no one, Texas voters don’t like income taxes. In an unguarded moment in 1991, newly elected Lt. Gov. Bob Bullock (D) told reporters that the Lone Star State needed an income tax, an issue that looked to dog the lieutenant governor in his 1994 reelection bid, and which his opponents sought to highlight by championing a constitutional amendment banning income taxes. His solution: get out ahead of them with his own constitutional amendment requiring any income tax to be ratified by the people by statewide referendum, while earmarking any revenues from a future income tax to education and property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. relief.
The legislature jumped at the chance and the voters gave their assent, but the idea of a total prohibition never went away. With other tax proposals falling by the wayside in recent years, policymakers revived this idea, and on Tuesday, voters overwhelmingly etched the prohibition into the state constitution, with 75 percent backing the resolution.
For many taxpayers in states like Texas, not having an income tax is an important selling point and a distinction worth the fight. That’s true in red states like Texas and blue states like Washington, where voters have also reiterated their opposition to income taxes on multiple occasions, and where Spokane voters just reiterated their opposition to municipal income taxation, should that opportunity ever arise.
TABOR Isn’t Going Anywhere
The fight over the Taxpayer Bill of Rights is unending in Colorado. To proponents, it’s a safeguard against unlegislated or unwarranted tax increases; to foes, it’s a straitjacket that unduly constraints the state’s options. Previous efforts to chip away at TABOR have failed, even when government revenues were in decline. But proponents thought they had a shot with Proposition CC, which would have suspended the automatic refunds which otherwise go to taxpayers when tax collections rise faster than inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. , instead allowing the state to keep the revenue for transportation and education projects.
Critics didn’t believe that the additional funding would really go exclusively to these purposes. And as it turns out, taxpayers like their refunds and seem to favor the constraints TABOR imposes on the growth of government. In what should have been a good year for weakening TABOR, voters resoundingly rejected Proposition CC, with only 45 percent in support.
Voters Are Open to New “Sin Tax” Revenue
In two California cities, Stanton and Brisbane, voters overwhelmingly endorsed the legalization of marijuana and the subsequent taxation of the new businesses under a multi-rate gross receipts taxA gross receipts tax is a tax applied to a company’s gross sales, without deductions for a firm’s business expenses, like costs of goods sold and compensation. Unlike a sales tax, a gross receipts tax is assessed on businesses and apply to business-to-business transactions in addition to final consumer purchases, leading to tax pyramiding. . As we have noted elsewhere, the structure of these new taxes leaves much to be desired. Unlike existing marijuana taxes, these taxes are imposed at each stage—cultivation, production, wholesale, and retail—leading to what is known as tax pyramidingTax pyramiding occurs when the same final good or service is taxed multiple times along the production process. This yields vastly different effective tax rates depending on the length of the supply chain and disproportionately harms low-margin firms. Gross receipts taxes are a prime example of tax pyramiding in action. . It is doubtful that voters were weighing in on a specific approach to taxation, though, as opposed to bestowing their approval upon the broader ideal of legalization and taxation. Both measures passed with strong supermajorities.
Meanwhile, in Colorado, the legalization and taxation of sports betting won in an extremely tight contest, prevailing with a margin of just one percentage point. Sports betting legalization has had a mixed track record thus far, but it is plausible that the ballot language required by TABOR, which emphasizes increased tax collections (on a new industry), dampened support. Ironically, the language for the TABOR modification was itself quite rosy, asserting that a “yes” vote would not raise taxes and would better fund education and transportation. The new tax will be imposed at a rate of 10 percent on the net sports betting proceeds (amount wagered minus winnings) for casinos and internet sports betting operators contracted by casinos in the state. Despite the narrow margin, it is undeniable that voters find the new revenue streams offered by marijuana and sports betting appealing.
Sometimes Voters Say Enough is Enough
Washington voters certainly aren’t anti-tax, but it appears that the legislature’s adoption of $20 billion in new and increased taxes (revenues over a 10-year window) doesn’t sit well with them. Voters took advantage of the state’s “advisory vote” system, which allows the electorate to provide nonbinding recommendations to the legislature on whether to maintain or repeal major new laws, to repudiate many of the biggest tax increases the legislature has adopted.
Although voters gave their assent to the modest new tax on e-cigarettes and a surtaxA surtax is an additional tax levied on top of an already existing business or individual tax and can have a flat or progressive rate structure. Surtaxes are typically enacted to fund a specific program or initiative, whereas revenue from broader-based taxes, like the individual income tax, typically cover a multitude of programs and services. on international investment management services, they gave a thumbs-down to just about everything else: a new payroll taxA payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue. to fund long-term care services, for instance; Business & Occupation tax surcharges on financial institutions, service industries, tour operators, timber products, and paint; a new petroleum tax; a graduated-rate real estate excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. ; and even remote sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. authority. Clearly, Washington voters felt overtaxed, and with good reason.
The new laws they urged the legislature to reject are worth a combined $19.5 billion over the next decade.
Interestingly, for the most part, voters did not distinguish between taxes they would pay and taxes only paid by the highest earners or highest net worth individuals. True, they approved a tax on international investment management services, but 65 percent of them said no to a tax increase on the state’s largest corporations, 58 percent were opposed to higher taxes on financial institutions, and 67 percent came out against additional taxes on high-end homes. It’s true, of course, that advocacy campaigns are limited on nonbinding advisory votes and might have swayed some opinions, but it seems that Washington voters have reservations about policymakers’ rush to raise taxes.
These votes don’t tie lawmakers’ hands, but with results this stark, Washington elected officials might want to pay heed. Lawmakers thought they had a mandate to adopt sweeping tax increases. In light of Tuesday’s results, that conclusion is very much in doubt.
Few voters, of course, like tax increases. The typical voter wants to pay less in taxes and receive more government services because, well, who wouldn’t? But these votes also tell us something about voters’ priorities, and what taxes they are—and aren’t—willing to accept.
For a full list of election results, click here.
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