Tax Supporters Turn to the Ballot Box

By: - August 29, 2011 12:00 am

As it becomes more difficult to get state legislatures to pass tax increases, people who think cash-strapped states have cut budgets too much are taking their case straight to voters.

As Colorado contemplated large cuts to public education earlier this year, Rollie Heath wished that the state would raise taxes instead. Although Heath is a member of the Democratic majority in the state Senate and sits on the powerful appropriations committee, he didn’t try to use his legislative influence to persuade lawmakers to pass a tax increase. Instead, his approach was to do something any Coloradan could have done: He offered a citizens’ initiative.

Heath’s measure would raise both sales and income taxes over the next five years and use the roughly billion generated to restore money to education, from preschool to higher ed. The measure officially qualified for November’s ballot last week. So a momentous decision about taxing and spending will be made by Colorado’s voters, not the state’s legislators.

In Colorado, Heath’s approach was the only one available to him. Under the state’s Taxpayer’s Bill of Rights, all tax increases must be approved on the ballot. Yet even in other states where the legislature retains the power to set tax rates, supporters of tax increases are contemplating the same approach of going to the voters. In Nevada, business and labor groups are talking about bringing a major tax increase to the ballot. In California, leading labor unions are considering the same strategy for 2012.

Historically, ballot initiatives have more often been used to curtail taxes than to raise them. That’s been true in California, Nevada and Colorado as much as anywhere else. It’s not clear that voters today are any more amenable to tax increases than they’ve been in the past.

What has changed, though, is the obstacles to passing tax increases in legislatures. Those obstacles include supermajority requirements and other rules that make it particularly difficult to raise taxes. They also include a Republican Party that has become more united in opposition to tax hikes at the same time that it enjoys control of either the governorship or at least one house of the legislature in 39 states. In that context, supporters of higher taxes have begun to wonder whether going directly to the ballot is now the easiest way — and perhaps even the only politically plausible way — to raise taxes.

Signature strategy

 When Heath began promoting his initiative earlier this year, most of the Colorado political world scoffed. Governor John Hickenlooper, a Democrat like Heath, declared that the state had “no appetite” for tax increases this year. Even the Colorado Education Association, the state’s largest teachers’ union, withheld its endorsements. Heath, who lost by a 2-to-1 margin as the Democratic nominee for governor in 2002, seemed to be on another quixotic quest.

That changed when Heath turned in 142,000 signatures to get his measure on the ballot, including 1,000 he gathered himself. Now, teachers’ unions and the state association of school boards are backing the initiative. Heath hopes he’s building a popular movement for increasing revenues in a state where per-pupil spending is ,800 below the national average and where K-12 education was cut by more than million this year. “We’ve gone too far,” Heath says. “You can’t separate jobs and economic development from education.”

What Colorado decides could reverberate in California and Nevada. Both states require a two-thirds vote in the legislature to raise taxes, an increasingly difficult threshold to reach as fewer Republican lawmakers are willing to entertain tax increases. In California, Governor Jerry Brown spent much of the first half of the year looking for Republican votes to put an extension of tax increases that were set to expire on the ballot; he couldn’t find any. Now, some labor groups are talking about simply sidestepping the legislature entirely by putting tax increases on the ballot via voter initiatives.

In Nevada, where the housing market’s collapse has caused extreme budget problems, House and Senate Democrats got a Republican governor, Brian Sandoval, to go along with extending temporary tax increases this year after a court ruling disrupted Sandoval’s budget plans. Still, bigger tax changes — Nevada lacks an individual or corporate income tax — appear no closer to passing. The two-thirds rule is a key reason why. “It doesn’t make it more difficult,” says Danny Thompson, top lobbyist of the Nevada AFL-CIO, which has pushed for higher taxes. “It makes it impossible.” On going to the ballot with a tax increase, Thompson says: “We don’t see any other way to solve this problem.”

In Nevada, there has been discussion of the casino and mining industries — both of which don’t like being singled out for taxes — teaming up with unions to propose a new tax that would apply broadly to businesses. Still, nothing has happened yet. “There are no concrete plans out there from any organization or group,” says Tim Crowley, president of the Nevada Mining Association. “It’s just rumors.”

‘It has no chance’

 Undoubtedly, that hesitation reflects the history of taxes on the ballot. After all, many of the institutional obstacles to tax increases in these states were put in place by voters themselves. California’s two-thirds rule, Nevada’s two-thirds rule and Colorado’s Taxpayer’s Bill of Rights all were approved by voters.

In contrast, measures to raise taxes typically have struggled. For example, in Washington State last year, voters comfortably rejected an initiative to create a new income tax. At the same time, they easily approved an initiative to require a two-thirds threshold for tax increases to pass in the legislature.

In California, the last tax increase to pass on the ballot was a 2004 initiative to raise income taxes on the rich to pay for mental health services. Since then, several efforts have failed including a package in 2009 supported by then-governor Arnold Schwarzenegger. That measure only managed to win 35 percent of the vote, even though it was coupled with a state spending cap and enjoyed the support of the state chamber of commerce.

With that history in mind, anti-tax activists don’t seem overly concerned about the latest attempts. Chuck Muth, a leading Nevada conservative, says that a tax increase might pass if it were supported by key business groups. But he also points out that tax increase supporters have talked about going to the ballot in Nevada before and haven’t followed through. He thinks their goal is to use the possibility of an initiative as leverage to pressure legislators, not to actually ask voters for a tax increase.

Kris Vosburgh, executive director of the Howard Jarvis Taxpayers Association in California, is even more confident. “If they’re honest and straightforward and just say it’s a tax increase,” Vosburgh says, “we think it has no chance.”

Alternative to budget cuts
 What Heath and other tax increase supporters are counting on is that the public’s priorities are changing. Their hope is that dissatisfaction with seemingly constant budget cutting becomes strong enough that tax increases prove a more popular alternative. “If you’re ever going to be able to do something,” says Thompson of the Nevada AFL-CIO, “it’s now.”

Already, there may be some signs of this shift. In January of last year, Oregon voters upheld legislatively approved individual and corporate income tax increases at the polls. It was the first time Oregonians had voted for a broad-based tax increase since the 1930s. Also last year, Arizona voters overwhelmingly approved a temporary sales tax increase that the legislature had placed before them. Both of those campaigns, like Heath’s campaign, centered on preserving funding for education.

Of course, the votes in Oregon and Arizona were on initiatives put forward by the legislature, rather than by citizens. The lesson from those states may be that if you want a tax increase to pass on the ballot, it’s best not to sidestep the legislature, but instead to get its endorsement.

That’s what supporters of transportation funding in Georgia are counting on. From the moment it passed last year, Georgia’s transportation plan was held up as a model of how to raise taxes in a state where both legislators and voters are averse to tax increases. The legislation set up 12 separate regional votes in August 2012 on temporary sales taxes increases to fund a list of specific transportation projects agreed upon by local elected officials.

Supporters, who included the state’s top Republicans and leading business groups, thought voters would accept tax increases if they knew precisely how the money would be spent. Conservative legislators didn’t have to actually vote for a tax increases, only to let voters decide. The measures have powerful backers. Business groups in Georgia plan to pump millions of dollars into getting the tax increases passed.

Yet there are signs that the pro-tax side is struggling. In metro Atlanta, despite the region’s traffic-clogged roads, one poll from June showed the transportation tax trailing badly. An effort last week in the legislature to move the votes to the November general election — when the electorate is expected to be less conservative — failed, increasing the probability voters will reject the taxes. If the transportation votes fail, the message from Georgia could end up being that placing tax increases on the ballot is a dead end, even when tax increase supporters seem to do everything right.

In Colorado, Heath’s initiative lacks the same coalition that’s behind the Georgia tax increases. Hickenlooper is staying neutral, while key business groups have declined to offer endorsements. While the initiative already has gotten further than most people expected, no one’s predicting with any confidence that it will actually pass. “It’s still a very hard thing to ask voters to raise their own taxes,” says Mike Wetzel, a spokesman for the Colorado Education Association. “No one enjoys paying taxes.”

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Josh Goodman

Josh Goodman helps lead research on fiscal management and place-based economic development programs as part of Pew’s state fiscal health project. Goodman has served as a primary author for Pew studies that examine how states should evaluate tax incentives and maintain budget discipline when implementing those incentives.