The Taxpayers Bill of Rights

Report Budget and Spending

The Taxpayers Bill of Rights

August 9, 2004 8 min read
The Heritage Foundation

The Taxpayers Bill of Rights

July 16, 2004



Chris Atkins, Director of Tax and Fiscal Policy of the American Legislative Exchange Council

Stephen Moore, President of the Club for Growth

Alison Fraser, Director of the Roe Institute at the Heritage Foundation


Moderator: Scott Hodge, President of the Tax Foundation


Scott Hodge

President, Tax Foundation

One of the beautiful things about living in a federalist system is that we have 50 laboratories of democracy all trying different things, and in some cases, they actually get it right. One of those cases is the Taxpayers Bill of Rights in Colorado. It is working to rein in the size and scope of government and, in many cases, to actually return cash to taxpayers when there are surpluses.


Chris Atkins
Director of Tax and Fiscal Policy, American Legislative Exchange Council

In November of 1992, the people of Colorado had on their election ballot a question: should government growth in spending be limited to the growth of population plus inflation? Governor Roy Romer campaigned vociferously against this measure, known as the Taxpayers Bill of Rights (TABOR). He said that if it were passed, you might as well put up a sign on the borders of Colorado that said 'Closed for Business.' He also said, interestingly, that defeating TABOR would be the moral equivalent of defeating the Nazis at the Battle of the Bulge.


Despite this hyperbole, all indications are that TABOR has been a smashing fiscal success for the people of Colorado. It has successfully limited the growth of government. It is popular with the people. And fiscal conservatives in other states throughout the country are seeking to model the success it has had in Colorado.


Why did the citizens of Colorado pass TABOR? Because they were sick and tired of paying higher taxes. They didn't want their money to fund wasteful government spending. What does TABOR do? It requires voter approval for tax increases. It limits spending growth to population plus inflation. Surpluses above this limit have to be returned to the people. And it sets aside three percent of TABOR revenue each year for an emergency fund that can only be tapped upon declaration of an emergency with a two-thirds vote in each house of the legislature.


TABOR didn't require cuts in services. It just slowed growth in government. The people retained the right to increase taxes and spending, but it was a change in their outlook. They were saying that anything that comes in above this limit will be presumptively treated as belonging to the people and not to the government.


In a poll taken last year, 71 percent of Coloradoans favored retaining their power to approve tax increases. That's up 20 percent from the number of people that passed TABOR in 1992. It's easy to see why the people like TABOR when you look at how Colorado has boomed since TABOR was passed. Colorado has been near the top of all states in all meaningful measures of economic growth since 1992. The average unemployment rate was 6.1 percent before TABOR was passed; it has dropped to 4.1 percent since. Gross State Product growth has increased from a little over 6 percent before TABOR to almost exactly 8 percent since TABOR was passed. Colorado's tax burden fell even further below the national average after TABOR was passed.


You can't make the claim that TABOR has decimated government in Colorado. It has definitely reined in the growth. But the people can override TABOR's limits if they want to.


Stephen Moore

President, The Club for Growth

The rules of the game really do matter. I think one of the reasons we're losing is because we have let the other side establish what the rules of the game are. And that's the reason that government grows and grows and grows.


The question, then, is from where did the rules of the game come? The ultimate rulebook is the Constitution. The United States government in the early years, especially the late 18th and early 19th centuries, was quite small, and national defense was about 60 percent of the budget because that was the one thing government was authorized to spend money on. Presidents would routinely veto most other things that Congress would try to spend money on because Congress didn't have authority in the Constitution to spend money on this program or that program, no matter how well intentioned. Starting with FDR and the New Deal, constitutional restraints on government have eroded, and we've seen a massive expansion of government in the last 75 years and especially in the last 20. Government has spent more money, adjusted for inflation, over the past 20 years than it did in its first 200 years.


In the 1974 Budget Act, Congress essentially stripped the president of the powers he had over the budget for the first two hundred years of the nation. You can really trace our budget deficit problems to that act. A grand failure of the Republican Congress over the last ten years is that it hasn't rewritten the rules of the budget. That is one of the reasons that the Republicans have not been successful in cutting the budget. We need to change the rules of the games to the way the Founders saw it, to restrict the growth of government.


The idea of a rebate mechanism creates a new political dynamic that offsets the impulse to spend. One of the problems is that all of the rewards of our current system are to spend. If a congressman spends money on this program or that program, he can say how wonderful he is and how much he cares about children or veterans or whatever the program is. But there is not any praise for saving money. This TABOR amendment has changed that whole dynamic. All of a sudden if you withhold spending and stick to spending caps the taxpayer is very happy when he gets the tax rebate back.


I think TABOR is a useful idea, but we need to go beyond it. I would like to see a sunset provision on spending programs. It is unbelievable that the only things we ever sunset are tax cuts. I'm also a big fan of the line-item veto. I don't care if John Kerry or George Bush has the line-item veto, but if you put that authority in the hands of the president he is going to cut out a lot of the Cowgirl Hall of Fames and other things we spend all this money on. There was a brief period when Bill Clinton had the line-item veto and he used it effectively. And then the courts ruled that it was unconstitutional. We have to find a constitutional way to do this. The final thing I'll mention is term limits. Term limits are so important for getting control of our budget. The longer that members of Congress spend in Congress, the more pro-spending they become.


Alison Fraser

Director of the Roe Institute, The Heritage Foundation

Since 2001, discretionary spending has grown by nearly 40 percent. Mandatory spending has topped 11 percent of GDP for the first time ever. And remember that most of this new spending is unrelated to defense and the War of Terror. We have a huge spending problem. And that's just the beginning. When the baby boomers retire we are going to see huge increases in the federal budget. Right now, federal spending is about 20 percent of GDP; by 2050 it is projected to be 36.5 percent of GDP. This is why it is so important to change the spending dynamic at the federal level. The budget process we have today is designed to guarantee spending increases. Implementing something like TABOR at the federal level will force Congress to start balancing its spending priorities.


There have been a number of initiatives over the past 20 years aimed at controlling spending. We've learned a couple of lessons from these attempts. First, lawmakers are not going to restrain spending or eliminate programs unless they are required to. Second, budget reform proposals must be easy to understand and supported by the American people. TABOR is easy to understand. Third, spending constraints should put all spending on the table. The real spending problem is entitlements, and those must not be excluded from consideration.


The purpose of TABOR is to provide a simple and easy to understand way to restrict the growth of government. Of course, no budget reform is foolproof, but TABOR has slowed the growth of government at the state level and could do the same at the federal level too. This federal TABOR is jointly proposed by the Heritage Foundation, Tax Foundation, National Taxpayers Union, Cato Institute, Citizens Against Government Waste, FreedomWorks! (Formerly Citizens for a Sound Economy), and American Legislative Exchange Council.


So how would this work at the federal level? TABOR would restrict spending increases to inflation plus population, just as in Colorado. However, it wouldn't be attached to the revenue side but only to the spending side because that's the real problem in Washington. In order to eliminate some of the uncertainty in forecasting, the limits on population and inflation would be based on three-year rolling averages. There could be no artificial rolling up of the limit based on gamesmanship in forecasting population.


It should be hard to get around. TABOR should require a two-thirds supermajority in both houses to override the spending limit. This is a high enough hurdle to prevent abuse but is low enough to clear in a true national emergency or war. TABOR should be further enforced by sequestration if the spending limit is exceeded without a two-thirds majority vote. The Office of Management and Budget would trim excess spending to live within the limit.


Bring in the taxpayers. What happens if there is a budget surplus? If there is a surplus it should be used for debt reduction. Under this provision, Congress would be stealing money from debt reduction if it spent the surplus. That would be politically unpopular. Finally, any new, unfunded mandates that the federal government passes on to the states should lower the TABOR cap. This would prevent Congress from getting around the spending limits.


In short, Tabor is a no-nonsense way to require Congress to protect taxpayers' wallets by controlling its spending problem.


Question from Audience

Question: Something like this where you put all spending under one cap pits the appropriators against the authorizers. Who wins? Is it a fight worth encouraging?


Mr. Moore: In politics, simplicity is the key to winning. The rallying cry of TABOR is the main provision that the federal budget cannot grow faster than the family budget. Is anyone opposed to that? The government cannot grow faster than people's ability to pay for it. That is a very powerful and populist message.


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