Taxpayer Bill of Rights (TABOR): The Cure for “Ratchet Up”

June 14, 2005

Below, Curtis says that

“Legislators need to be aware of these forces when creating new spending during boom periods. Due to the business cycle the increased tax collections will not last forever. To counter act the forces driving spending and rates higher, law makers need to create rainy day funds and resist the urge to spend every dollar of new revenue during times of economic expansion.”

Another important tool in alleviating tax and spend “ratchet-up” is the Taxpayer Bill of Rights (TABOR). This budget tool requires that excess revenue growth (in excess of population plus inflation) be rebated to the taxpayers. TABOR also requires voter approval for tax increases.

TABOR is criticized for its “ratchet-down,” which resets the revenue baseline based on the previous years revenues. This means that the TABOR limit is “ratcheted down” when revenues decline, but this seems like a more acceptable alternative than the “ratchet-up” where state taxes and spending grow higher and higher.

The Tax Foundation rates states on the their tax limitations in its State Business Tax Climate Index and also recently released a study refuting some of the common criticisms of TABOR in Colorado.

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