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May 2017 Brief: Volume 24, Number 14

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Iowa Taxpayers Deserve Constitutional Protection

 

by John Hendrickson

 

 

The Iowa Legislature made some difficult budgetary decisions this session because revenues are not rising as projected by the Revenue Estimating Conference (REC). This implies that revenue in Iowa is going down. However, that notion is false because revenues are increasing, just not at the pace of government spending. In fiscal year 2017, the Iowa budget is projected to be $7.3 billion, and state government spending continues to increase. The state budget in Iowa has increased from $5.9 billion in 2012 to $7.3 billion in 2017. To avoid more painful austerity measures and protect taxpayers, the Legislature must seriously address tax and spending reform. In addition, Iowa taxpayers must be protected by a constitutional amendment that would require a supermajority vote in the Legislature to increase taxes and fees.

 

Most states have some form of a tax and expenditure limitation, or TEL, either in law or in their state constitution. Tax and expenditure limitations also vary by type and strength:

 

Unfortunately, it is much harder to compare TELs than to compare overall tax and spending numbers. TEL rules vary radically from state to state. State political and cultural environments also vary. In State A, public officials may comply habitually with fiscal limitations. In State B, they may wage relentless war against them. Also, in some states there are unique ways of understanding, applying, or evading a rule — ways that often don’t appear in official documents. Furthermore, a TEL’s strength may vary over time. It may be powerful in youth and feeble in old age.[1]

 

Iowa Code dictates that the Legislature can only spend up to 99 percent of the projected revenue.[2] The Iowa Senate has already passed a constitutional amendment to place the 99 percent spending limitation into the Iowa State Constitution, but the House has yet to act. As Iowa Legislators struggle with making difficult decisions to fund numerous government programs, there will be pressure to raise tax rates in an attempt to bring in extra revenue. This would not just be a policy mistake; it would harm Iowa’s economy. Therefore, the Legislature should consider a state constitutional amendment to require a supermajority vote of the Legislature in order to raise taxes. This would provide the taxpayers of Iowa with protections against excessive taxation.

 

Iowa has considered in the past, and almost passed, a constitutional amendment that would have required a three-fifths majority vote of the Legislature to raise taxes, but the voters rejected this amendment by a close margin of 51-49 percent.[3] A constitutional amendment would not only protect taxpayers but also strengthen the current expenditure limitation already in the Iowa Code. Colorado’s Taxpayer Bill of Rights, or TABOR, is one of the most aggressive examples of a tax and spending limitation amendment. The TABOR provision was adopted by Colorado voters in 1992 in response to high levels of taxation and spending. The purpose of TABOR was to bring spending and taxes under control by requiring voter approval of spending and tax increases. Under TABOR, state spending is limited by population growth and inflation, and the government faces more accountability.[4]

 

The problem with any tax and spending limitation amendment — whether it is a supermajority vote of the Legislature or a vote of the people, as is the case with TABOR — is that these measures are primarily defensive in the sense that they add greater protection to taxpayers without guaranteeing government spending and taxes will not increase.

 

If Iowa wants to avoid further austerity in the state budget, the Legislature must not only consider a constitutional amendment requiring a supermajority to raise taxes, but also work to lower tax rates and spending. The Legislature seems gun-shy on pursuing tax reform because of revenue uncertainty and the numerous “voices” across Iowa who argue for greater spending, often drowning out the taxpayer’s voice. The argument often advanced by liberals and progressives is that higher taxes and more “investment,” or spending, on areas such as education will spur economic growth in Iowa. The other argument made is that there is no room to cut spending and everything is vital. Both arguments will lead Iowa in the wrong economic direction.

 

Robert G. Natelson, a Senior Fellow in Constitutional Jurisprudence at Independence Institute, wrote that “raising taxes and spending usually impedes, rather than stimulates, state economies.”[5] The solution for Iowa, then, is to examine ways to not only protect taxpayers, but create economic growth. This will require Iowa to lower tax rates and consider priority-based budgeting. In fact, states that have pursued tax and spending reform have not only made improvements in economic growth; they have been able to provide additional support to vital state programs such as education.

 

Governor Scott Walker (R-WI) urged his Legislature not to raise taxes and to continue with his pro-growth tax reforms, which have led to more job creation and thus more revenue.[6] Governor Walker has not only achieved tax relief for the taxpayers of Wisconsin; he is also investing “into our priorities, which are student success, a stronger workforce, and good roads and infrastructure.”[7] Governor Gary Herbert (R-UT) also warned his Legislature that the “very best way to ensure ongoing growth of education funding is to continue to grow the economy.”[8] He also stated, “Failure to take into account how tax rates affect business investment won’t help us make good policy decisions.”[9]

 

Taxpayers in Iowa deserve more constitutional protection from excessive taxation through a constitutional amendment requiring a supermajority vote of the Legislature to increase taxes and fees. TELs serve a purpose, but they must be accompanied by pro-growth tax and spending policies. A state, just like the national government, cannot tax and spend its way to economic prosperity.

 

Endnotes:

[1] Robert G. Natelson, “The Colorado Taxpayer’s Bill of Rights,” Independence Institute, IP-3-2016, September 2016, <https://www.i2i.org/wp-content/uploads/2015/01/IP_3_2016_web_a.pdf> accessed on April 17, 2017.
[2] For more information, see “State of Iowa Expenditure Limitation Process,” Legislative Services Agency: Fiscal Services Division, March 10, 2017, <https://www.legis.iowa.gov/docs/publications/IR/797619.pdf> accessed on April 17, 2016.
[3] Kathie Obradovich and Todd Dorman, “Amendments fail,” Globe-Gazette, June 30, 1999, <http://globegazette.com/news/state-and-regional/amendments-fail/article_19012296-a911-5a3c-9127-47c6b7061f17.html> accessed on April 17, 2017.
[4] For more on TABOR, see “TABOR: A Pro-Growth Solution for Iowa,” Public Interest Institute POLICY STUDY, No. 12-2, February 2012, <http://www.limitedgovernment.org/publications/pubs/studies/ps-12-2.pdf> accessed on April 17, 2017.
[5] Natelson.
[6] Governor Scott Walker, “Weekly Radio Address: Now is Not the Time to Raise Taxes,” Office of Governor Scott Walker, April 6, 2017, < https://walker.wi.gov/press-releases/weekly-radio-address-now-not-time-raise-taxes> accessed on April 18, 2017.
[7] Ibid.
[8] Governor Gary Herbert, “2017 State of the State Address, Utah Governor Gary R. Herbert, January 25, 2017,” Office of Governor Gary Herbert, <https://governorblog.utah.gov/2017/01/2017-state-of-the-state-address/> accessed on April 17, 2017.
[9] Ibid.

 

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