More Good News Thanks to Colorado’s TABOR Spending Cap

Colorado has the best fiscal rule in the United States. The Taxpayer Bill of  Rights (TABOR) limits state government spending so that it cannot grow faster than inflation plus population.

Does Colorado’s spending cap work perfectly? Of course not.

Politicians in the Centennial State have spent decades coming up with ways evade and avoid TABOR’s restrictions.

But let’s not make the perfect the enemy of the good.

A study published last year shows that TABOR has saved taxpayers $8.2 billion.

And taxpayers in Colorado may soon keep even more of their money according to an article by Brian Eason in the Colorado Sun. Here are the relevant excerpts.

…the budget will be squeezed primarily by two seemingly minor factors. One, U.S. Census estimates now say the state’s population grew by less than the state’s demographer had anticipated. That means the state revenue cap under the Taxpayer’s Bill of Rights, which tracks inflation and population growth, can only increase by 5.8% this budget year rather than the 6.1% legislative forecasters were expecting. Two, the state is now expected to collect $185 million more in road usage fees and retail delivery charges this year than last, under the legislative staff estimates. Taken together, the two forecast changes mean state lawmakers could have to issue larger than expected TABOR refunds to Coloradans next year, leaving the state with fewer General Fund tax dollars to spend… That would translate to a nearly $400 refund for the average single-filer in 2025 under the current refund formula, which is tiered based on income.

I’m tempted to call this the feel-good story of 2024. Politicians get less money to waste and taxpayers get more of their money returned.

No wonder TABOR is the gold standard for good fiscal policy at the state level. And Switzerland shows that spending caps also are very effective at the national level.

By contrast, there is very little evidence that balanced-budget rules produce good results.

P.S. Perhaps the best evidence for TABOR is that the pro-spending lobbies in Colorado are always trying to trick voters into approving ballot initiatives that would allow more spending. But as we saw in 2013, 2019, and 2023, the voters of left-leaning Colorado keep voting to to maintain their spending cap.

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More Evidence for Colorado’s Spending Cap

Spending caps are the only fiscal rule with a good track record.

I’ve repeatedly written about Switzerland’s spending cap, known as the “debt brake,” which has limited annual spending growth to an average of just 2.2 percent over the past two decades.

That’s very impressive, especially compared to the irresponsible 4.9 percent average annual spending growth in the United States.

I’ve also written several times about Colorado’s spending cap, known as the Taxpayer Bill of Rights (TABOR), including a column earlier this year showing that state taxpayers have received $8.2 billion of tax relief.

Today, let’s look at more pro-TABOR evidence. Americans for Tax Reform has a “Sustainable Budget Project” to monitor and track state budgets. Here’s their chart showing the results for Colorado.

As you can see, Colorado government spending between 2013 and 2022 was below population plus inflation.

And that’s true when looking at the money that Colorado collected and spent (“state funds budget), and also when looking at total spending  (“all funds budget”), which includes spending financed by the federal government.

None of this, however, means that TABOR is perfect.

Vance Ginn just wrote an article on strengthening Colorado’s spending cap for National Review. Here are some highlights.

TABOR recently had its 30th birthday. Voters approved the constitutional amendment in 1992, establishing the strongest tax and expenditure limit in the country. It’s been the gold standard for a sound spending limit ever since. …When adopted, the limit covered about two-thirds of state spending. It requires voter approval for tax increases and mandates refunds to taxpayers if tax revenue exceeds the limit. …Unfortunately, courts and politicians have eroded the strength of TABOR over time, primarily because of politicians’ lack of fiscal restraint. The result has been that TABOR now covers less than half of state spending… The…Sustainable Colorado Budget..will help reinforce the original intent of TABOR, by broadening the spending limit to all state funds. The plan would limit nearly two-thirds of state spending each year, as when voters first adopted TABOR. Doing so will result in larger surpluses to reduce income-tax rates yearly until they’re zero.

Several times in recent years (2013, 2019, 2023), proponents of good fiscal policy have had to fight against referendums to weaken TABOR. As Vance wrote, it’s time to go on offense and push to make the spending cap even more effective.

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Great Election Result

Since I care about policies rather than politicians, yesterday’s most important election was a referendum that took place in Colorado.

The big-spending lobbies once again tried to weaken the state’s spending cap, known as TABOR, or the Taxpayer Bill of Rights.

Yet even though Colorado voters lean to the left, they overwhelmingly rejected Proposition HH. Here are the results.

I underlined the most important part of the above description because the anti-TABOR crowd tried to deceive voters by portraying Prop HH as a measure to lower property taxes.

As I wrote last month, “Will Colorado voters be tricked by Proposition HH? Will they be distracted by the shiny bauble of lower property taxes while politicians grab a greater amount of income tax revenue?”

Fortunately, the voters saw through the ruse.

Here’s how Nick Coltrain and Seth Klamann of the Denver Post described the outcome.

Colorado’s wide-ranging Proposition HH, a property tax relief and education-funding measure pressed by the state’s Democratic leaders, went down in defeat Tuesday night as voters were rejecting it by 20 percentage points. More than 60% of voters rejected Proposition HH…voters in all but a handful of counties were on track to reject the major policy proposal put forth by Gov. Jared Polis and legislative Democrats… It was the second time in four years that voters rebuffed an attempt by state Democrats to raise spending limits under the Taxpayer’s Bill of Rights, or TABOR. …Proposition HH marked the latest defeat as Democrats attempted to leverage their trifecta in state government to hold onto more tax money. On the 2019 ballot, they ran Proposition CC, which proposed to retain all taxes collected beyond the TABOR cap, ending refunds, in a bid to shore up the budget. Voters rejected Prop. CC.

If you want to track the history of anti-TABOR initiatives, I wrote about Prop CC in 2019. And I also wrote about an anti-TABOR initiative that failed back in 2013.

If Republicans were smart (don’t laugh), they would push TABOR-style spending caps in other states.

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The Most Important Ballot Initiative of 2023

Every year, I highlight the most important ballot initiative or referendum.

• In 2022, Massachusetts voters tragically voted to replace the state’s flat tax with a system based on class warfare.
• In 2021, voters in the state of Washington overwhelming expressed their opposition to a capital gains tax.
• In 2020, Illinois voters wisely rejected the pro-spending lobbies and voted to retain that state’s flat tax.
• In 2019, voters in Colorado voted down an initiative that would have weakened the Taxpayer Bill of Rights.

For 2023, Colorado will once again have the spotlight.

That’s because the pro-spending lobbies and their allied politicians have not given up on their campaign to gut TABOR.

As far as they are concerned, the $8 billion-plus that has been refunded to taxpayers is money that should have been used to finance bigger government.

They hate that there is an annual spending cap that limits the growth of government. So the fact that they lost in 2019 (and in 2013 as well) isn’t stopping them from putting another proposition on the ballot.

The newest anti-TABOR initiative is called Proposition HH and the Wall Street Journal editorialized last month about this bait-and-switch scheme.

Coloradans enjoy relatively low taxes for a blue state, but their luck may not last. Democrats in Denver are backing a measure that would blow through the state’s spending cap… The coming tax hazard is known as Proposition HH… It proposes two policy changes that work in opposite directions. The first would curb property-tax growth modestly by lowering the assessment rate. That would save about $4,600 for an average homeowner through 2032… The kicker is the second part. The same ballot measure would raise the amount the state can spend by about 25% a year… That change would cost each household about $5,100 over nine years, swallowing the savings from the property-tax cut. The changes could cost taxpayers an estimated net $21 billion through 2040. …Colorado Democrats have spent years trying to lift the spending cap, and the property-tax mirage is their latest gambit. …public unions, which want the no-limits spending of other Democratic-controlled states.

In a column for Forbes, Patrick Gleason expands on these concerns.

…the most consequential measure appearing on the November 2023 ballot…is found in Colorado, where voters will be asked whether they want to weaken the nation’s strongest tax and expenditure limit… Proposition HH…would weaken the state’s Taxpayer’s Bill of Rights (TABOR) by permitting the state to keep surplus revenue that would otherwise have to be returned to taxpayers. …Rather than sell HH as an initiative to end TABOR refunds moving forward so that government, not taxpayers, has more money to spend, Proposition HH backers have instead branded it as a property tax relief measure. …Opponents of HH have been pointing out that the measure would translate into forfeiture of TABOR refunds and ultimately lead to a much higher overall tax state burden in the future. …Proposition HH would raise the TABOR spending limit by a cumulative $12.5 billion over the first decade, around $65 billion over two decades.

Will Colorado voters be tricked by Proposition HH? Will they be distracted by the shiny bauble of lower property taxes while politicians grab a greater amount of income tax revenue?

We’ll find out next month.

Since TABOR is the gold standard of fiscal rules in America, I’ll be very interested to see what happens.

P.S. If I was including ballot initiatives from other nations, Chile’s rejection of a statist constitution would have been 2022’s most important result. And Switzerland’s rejection of “universal basic income” would have been the most important result of 2016.

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America’s Best Fiscal Rule Is Colorado’s Spending Cap

I’ve referred to Colorado’s spending cap as a “role model” and the “gold standard,” and I lavished even more praise on the Taxpayer Bill of Rights in this clip from a recent interview with Penn Pfiffner of the TABOR Foundation.

If you don’t have a couple of minutes to watch the video, all you need to know is that balanced budget requirements are mostly ineffective.

Or, if you want to be pessimistic, such rules actually give politicians an excuse to raise taxes.

What makes TABOR so successful is that it is designed to control the variable that really matters, which is the growth of government.

TABOR basically tells politicians they can increase spending every year, but no faster than population plus inflation.

Has it worked perfectly? Of course not. But it has returned more than $8 billion to the taxpayers of Colorado.

And Colorado definitely has out-performed other states economically, as measured by the growth of per-capita income.

This is the approach we need in Washington. Heck, even international bureaucracies have acknowledged that spending caps are the only effective fiscal rule.

It is also worth noting that the German government recently endorsed that approach for Europe, which is a positive development since the European Union’s anti-deficit rules obviously have not been effective.

So I’ll be very curious to see whether any 2024 presidential candidates decide to embrace this approach (whether they are sincere is a different issue, needless to say).

P.S. The international version of TABOR is the Swiss Debt Brake.

P.P.S. I also recommend this video about spending caps.

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Spending Caps are the Fiscal Gold Standard

Earlier this month, I wrote separate columns about the spending cap in Switzerland (the “debt brake“) and the spending cap in Colorado (“TABOR“).

In this clip from my appearance on Let People Prosper, I explain those spending caps are the gold standard for fiscal rules.

It should go without saying that spending caps are good only if they actually constrain the size of government, just as speed limits in school zones are good only if they protect children from reckless drivers.

Which is why I favor spending caps that comply with my Golden Rule.

As you might suspect, politicians generally don’t want any constraint their ability to spend money (and buy votes).

But sometimes they do the right thing. Or at least propose the right thing.

In an article for the Hill, Aris Folley and Mychael Schnell explain that Republicans are offering to give Biden more borrowing authority if Biden agrees to spending caps for the “discretionary” part of the budget.

Here are the relevant excerpts.

House Republicans on Wednesday passed a bill to raise the borrowing limit and implement sweeping spending cuts… The bill would raise the debt ceiling by $1.5 trillion or through the end of next March, whichever happens first, in exchange for a wide range of Republican proposals to decrease government spending that, according to the Congressional Budget Office (CBO), amount to $4.8 trillion. The bill would cap federal funding hashed during the annual appropriations process at fiscal 2022 levels, while also limiting spending growth to 1 percent every year over the next decade.

The good news is that Republicans are talking about spending caps. This is a welcome change of pace after the profligacy of the Trump years.

The bad news is that the GOP plan presumably has very little likelihood of getting approved.

And even if Biden and Senate Democrats somehow agree to the spending cap, it only applies to discretionary spending. That’s better than nothing, but entitlements are America’s big fiscal problem.

Moreover, keep in mind that Republicans got spending caps on discretionary spending back in 2011, but those caps were then abandoned after some early success.

In other words, I’m not brimming with optimism. But let’s not make the perfect the enemy of the good. Politicians are talking about spending caps today, so maybe there’s a chance of getting real results at some point in the not-too-distant future.

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TABOR Is America’s Fiscal “Gold Standard”

If Republicans do as well as expected in next Tuesday’s mid-term elections, especially with regard to gubernatorial and state legislative contests, I expect that more states will enact and expand on school choice in 2023.

That will be great news for families.

But I also want great news for taxpayers, and that’s why I’m hoping that we also will see progress on fiscal policy. To be more specific, I want to see more states copy Colorado’s very successful spending cap.

Known as the Taxpayer Bill of Rights (TABOR), it basically limits the growth of annual tax revenue to the growth of population-plus-inflation. Any revenue above that amount automatically must be returned to taxpayers.

And since the state also has a balanced-budget requirement, that means spending can only increase as fast as population-plus-inflation as well. A very simple concept.

Has TABOR been successful? Has it produced better fiscal policy and more economic prosperity?

The answer is yes. In a column for National Review, Jonathan Williams and Nick Stark say it is the “gold standard” for state fiscal policy.

TABOR is a state constitutional amendment that limits the amount of revenue Colorado lawmakers can retain and spend to a reasonable formula of population plus inflation growth. If the state government collects more tax revenue than TABOR allows, the money is returned to taxpayers as a refund. Just this year, Colorado taxpayers will receive nearly $4 billion in TABOR refund checks. If any government in Colorado intends to spend surplus revenue, increase taxes or fees, or increase debt, it must submit the proposed measure to the ballot and win the approval of a majority of voters. …Following the low-tax-plus-limited-government formula, Colorado developed into one of the most competitive business climates in the nation in the years following TABOR’s adoption. During the past three decades, Colorado has been one of the most competitive and fastest-growing economies in the nation. …Even in the face of this tremendous economic-success story, the tax-and-spend crowd have spent a tremendous amount of resources trying to demonize TABOR, often attempting to find work-arounds or suing to have TABOR declared unconstitutional. Why? In short, because it is an effective limit on the growth of government, and it restricts the wild spending increases that fund their constituencies — who generally favor big government. …Other states trying to implement meaningful checks and balances on the inexorable government-growth machine…should follow Colorado’s example.

Courtesy of Jon Caldera, here’s some of Colorado’s fiscal history, which began with a flat tax in the 1980s and then culminated with TABOR in the 1990s.

Colorado used to have a progressive income tax where people and companies would pay a higher tax rate the more money they earned. Thanks to the Independence Institute…and…economist Barry Poulson, the legislature was convinced to switch from the progressive tax to a flat one in the mid-1980s. Poulson urged that the new tax rate be 4.5% so that it would bring in the same amount of revenue as the system it was replacing. …So, of course, the legislature set the new rate at 5% to create a fine windfall, which it did. Even so, the flat income tax did what it was predicted to do. It lit the engine of Colorado’s economy. When productive people and their companies are looking to locate, they are attracted to states with low and stable tax policy. The flat tax began the Colorado boom. That boom resulted in massive tax receipts to the state. So much so that the legislature quickly felt the growing pressure of a tax rebellion. …So, we then passed the Taxpayer’s Bill of Rights in 1992. The combination of our flat tax and TABOR attracted more and more businesses and jobs to Colorado. So much so that in the late 1990s the state had to refund some $3.2 billion of surplus tax revenue to taxpayers. …The combination of our flat-rate income tax and TABOR has made for a sustainable gold rush which has turned Colorado into one of the most economically vibrant states in the country with one of the lowest unemployment rates.

I’ll close by explaining why folks on the left also should support TABOR-style spending caps.

Part of the reason is that they should care about future generations.

Part of the reason is that they should care about economic growth.

But another reason is that it may be politically beneficial. Check out these excerpts from a column in the Denver Post by Scott Gessler.

TABOR requires a vote of the people to raise taxes, incur debt, or spend excess government funds. Practically, it makes all three much harder. So Democrats hate TABOR. …conservatives love TABOR. They rarely support tax increases or additional borrowing, and for them TABOR imposes fiscal discipline and forces government to live within its means. And Colorado has avoided the ongoing fiscal crises that have plagued other states like Illinois or California. Plus, it’s hard to argue against the public’s right to vote on taxes and debt. …But what about Republicans? They’re the ones who have paid the political price. …Today, voters can oppose Republicans and support Democrats, with little fear taxes will go up. …So expect the continued irony, as Democrats attack TABOR with a unified voice, while Republicans usually support it, yet lose political strength.

Since I care about policy rather than partisanship, I hope lots of Democrats read this article and then embrace spending caps. If they don’t want to copy Colorado, they can opt for the Swiss version of a spending cap. So long as they choose something real, it will work.

That would be bad for Republicans, but good for prosperity.

P.S. Colorado is now a blue-leaning state, but voters in 2019 rejected an effort by the pro-spending lobbies to eviscerate TABOR.

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