Saturday, October 22nd, 2016

Requiring a supermajority to raise taxes


This week at the MacIver Institute, I took a look at the different approaches to require a supermajority before raising taxes. Here’s a portion of it:

One of Walker’s proposals is to pass legislation that would prevent increases in the sales and income tax rates unless two-thirds of each chamber of the legislature. The only exception to this rule would be if the voters agreed in a statewide referendum to approve a tax increase.

The advantage of the legislation is that it forces the legislature to look for real spending cuts to deal with the state’s $3 billion budget deficit. It may seem redundant with a Republican legislature and a Republican governor to statutorily erect barriers to tax increases, but establishing such a barrier early in the session will prevent members of the legislature from losing their nerve later when pressure groups fight the spending cuts. When there is no means of retreat, the only direction is forward.

However, there are flaws in the legislation. While rates cannot go up, the legislature could remove exemptions to the sales tax and increase tax revenue that way. For example, the legislature changed the exemption on the sales of American and Wisconsin flags in 2009 so that a “flag kit” is subject to the sales tax if the contents of the kit other than the flag are a certain percentage of the sale. If the legislature were to remove the exemption completely, it would be a tax increase but not an increase in the sales tax rate.

It also does not prevent fee increases. This is really important in Wisconsin where segregated funds, such as the transportation fund, have been rated to feed the general fund. Wisconsin’s balanced budget requirement prevents the state from borrowing to fund general purpose revenue expenditures. However, when the state raids the transportation fund for a portion of the fees collected, the transportation fund makes up for it by borrowing. So the raid really is nothing more than an expensive way to laundered borrowed money to fund the day-to-day operation of state government.

Most importantly, the two-thirds requirement will only tie the hands of the current legislature. After the 2011-2012 session, the legislature can go right back to raising taxes to appease the special interests. This is why some in the legislature would prefer to make the supermajority requirement to raise taxes part of the state constitution.

A constitutional amendment would have the advantage of making a supermajority requirement permanent. The national experience is not that we always elect good people, but that the State Constitution prevents bad people from government from doing harm. By putting the supermajority requirement in the state constitution, we are acting consistently with the principle of limiting the ability of future legislatures of forgetting the economic lessons of the last decade and doing economic harm to the state.

The downside of amending the State Constitution is the length of the process. A constitutional amendment will need to pass two sessions of the legislature and be approved by the voters in a referendum. The earliest a referendum could go to the voters would be 2013. The state will likely pass two state budgets in the meantime.

A combination of the two approaches may be necessary if either of them is going to be successful.

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