Avoiding a Tyranny of the Majority on Taxes

In order to get their fiscal houses in order, states must enact measures to make it tougher to increase spending and raise taxes. Though many policy options to achieve those ends exist, one tops the list: a “supermajority” requirement.

Generally, each house of a state legislature must reach a majority vote in order to enact bills that increase tax rates. Raising the threshold and requiring a vote of more than 50 percent (aka “supermajority”) for tax-related measures curtails rate hikes by forcing lawmakers to achieve a higher standard of negotiation and compromise. This makes raising taxes more difficult. Consequently, a supermajority rule pushes lawmakers to rely more on rolling back spending to meet budgetary goals.

We witnessed such affects in Colorado. In 1992, the state instituted a Taxpayer’s Bill of Rights (TABOR), which gave voters the final word on any tax increase. The measure also requires a 2/3 vote of the legislature for temporary emergency taxes only. Following its implementation, Colorado saw a rapid influx in population (30 percent in the 1990s) and significant expansion of its electronics industry. As a result, government revenues increased—allowing state lawmakers to lower personal income and sales tax rates while also issuing substantial “TABOR refund checks” to taxpayers.

Other states have not fared as well. Over the past decade states such as Wisconsin and Washington repeatedly raised tax rates, often with a slim majority vote of the legislature. Michigan alone implemented a $1.3 billion income tax hike in 2007. The result? Slow economic growth and high unemployment.

During the same period, many other states were reducing their rates and, conversely, increasing their prosperity. This year alone, nine states have proposed reducing or eliminating their personal income tax. Interstate tax competition has become especially fierce among Heartland states. Governor Brownback in Kansas has proposed reducing and eliminating the personal income tax in an effort to curb the exodus of business investment and jobs to surrounding states with no or low income, including Colorado, Oklahoma, and Texas.

Striving for a course correction along similar lines, Wisconsin became the 17th state to enact a supermajority vote requirement for tax hikes last year. This year voters in Washington and Michigan will vote on similar amendments to their constitutions.

Under Gov. Rick Snyder’s administration, Michigan has begun to reduce both individual and business taxes—a move which has started to foster a better business climate. If the state continues to pursue more prudent tax policies, the next decade could provide a sharp contrast to the past one. But Michigan citizens should not be complacent about the future trend in tax policy. Lawmakers have already introduced measures during this legislative session that would return Michigan to the high business tax burdens and targeted tax breaks of the previous administration.

It is a leap of faith to assume that a supermajority requirement could have prevented all the tax increases enacted over the past decade; however, it is not unreasonable to suggest that some of those tax hikes would have failed to reach the requisite supermajority vote. Citizens proposing the initiative for a supermajority requirement to raise taxes want to avoid the mistakes of the past and protect their economic freedom.