Tax Foundation Report Looks At Ballot Initiatives in 23 States

October 31, 2008

Voters in 23 states will be considering initiatives and referenda relating to tax issues on November 4. Our new report, Tax Foundation Fiscal Fact No. 154: Voters Will Consider Tax-Related Ballot Initiatives in 23 States, summarizes each of them and the arguments made by proponents and opponents.

For the full list, check out the report. Here are some of the more prominent initiatives:

Arkansas – Proposed Constitutional Amendment 3 would establish a state lottery, with the proceeds used for college attendance scholarships. Arkansas is one of eight states that do not have a lottery; a similar measure failed in 2006. Proponents including Lt. Gov. Bill Halter point to programs the lottery revenues would fund. Opponents argue that lotteries are a regressive form of taxation and are accompanied by social costs. This Tax Foundation commentary discusses Measure 3.

Colorado – Amendment 59. In 1992, Colorado voters approved a Taxpayers Bill of Rights (TABOR), which capped state spending according to a formula of population growth plus inflation, unless a referendum approved exceeding the cap. The surpluses which resulted in subsequent years were used for education, saved in a rainy day fund, or refunded to taxpayers. Because TABOR’s formula was based only on the previous year’s spending, a one-time drop in revenue (during a recession, for instance) would “ratchet” down the cap for subsequent years. This provision was modified in 2005, when voters changed the formula to the highest collection in the last five years and suspended rebates through 2010 (diverting the money to education). Additionally, Amendment 23 requires annual increases in education funding, which with TABOR creates budget pressure. Amendment 59 attempts to address this problem by making permanent the elimination of rebates (with the money going instead to education), and exempt education spending from TABOR’s caps. Proponents support the increased education funding and argue that the constitutional reform is needed. Opponents say Amendment 59 effectively repeals TABOR’s limits, and that Amendment 23’s problems can be addressed in better ways.

Maryland – Question 2 would authorize the state to provide video lottery terminals (slot machines) in five locations in the state, with the $600 million raised funneled into education programs. Maryland recently raised taxes but the revenue increase is lower than projected, and along with spending increases has created a new budget shortfall. Proponents such as Governor O’Malley argue that slots can increase revenues without raising other taxes, and that some of the revenue can be pulled from neighboring states. It could also be said that by permitting some gambling, the state would give consumers more choice than they do at present. Opponents argue that state-sanctioned gambling is just a type of taxation and is associated with social costs, and that the measure does not address spending.

Massachusetts – Question 1 would cut the state income tax in half for 2009 and repeal it completely beginning in 2010. The state income tax currently tops out at 5.3 percent, and brings in $12 billion in revenue (out of a $28 billion state budget, not including “off-budget” expenditures and local government spending). If the initiative passes, Massachusetts would become the tenth U.S. state with no state income tax, joining Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. (But New Hampshire and Tennessee tax some individual investment income.) Proponents point to wasteful spending on projects like the Big Dig and toll roads and recent increases in spending. Opponents such as Governor Deval Patrick earlier this year called the proposal “irresponsible,” saying it would contribute to “broken roads…, overcrowded schools… [and] broken neighborhoods.” A similar measure received 45% of the vote in 2000.

North Dakota – Measure 2 would lower the state’s corporate income tax by 15 percent and the state’s personal income tax by 50 percent. This Tax Foundation paper extensively discusses Measure 2.

Oregon – Measure 59. Currently, Oregon taxpayers can deduct their federal income taxes from their state income taxes up to $5,600. Measure 59 would remove this cap beginning in 2010, reducing state revenues by $1.3 billion in the next two-year budget. Proponents say the measure repeals a double tax on income, while opponents argue that the revenue reductions would harm state programs.

Check out the full list here.

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