Executive Summary
A tax revolt ignited the American Revolution. Yet the Founders wisely saw that the problem wasn’t taxes; it was tyranny – government’s abuse of power. They devised a system based on the principle that governments derive their power “from the consent of the governed.” Implicit in this principle is the right of “the governed” to withhold their consent whenever that becomes necessary to rein in government’s excesses.
The tax limitation movement is an excellent example of an effort by “the governed” to rein in government’s excesses. It is a grassroots reaction to a growing tax burden. Measured as a share of the gross national product, the combination of federal, state, and local taxes reached historically high levels during World War II – and has stayed there ever since.
While such a high tax burden was understandable during a period of shared sacrifice when the nation’s very survival was at stake, the overall tax burden declined very little after the war. At the federal level, spending for the Cold War, Great Society programs, and Pork Barrel projects took its toll. Meanwhile, at the state and local level, taxpayers felt the consequences of the rise of public employee unions, with their demands for higher wages, generous pensions, job security, and costly benefits.
Efforts to tame federal spending have been unavailing, despite the solemn vows of many political candidates of both parties. Indeed, since World War II, voters have changed the party in control of the White House seven times, the U.S. Senate nine times, and the U.S. House of Representatives five times. Nonetheless, despite the relatively modest tax cuts backed by Presidents John F. Kennedy, Ronald W. Reagan, and George W. Bush, the federal tax burden – including payroll taxes that fund Social Security and Medicare – has continued to grow.
Thwarted at the federal level, the tax limitation movement increasingly has focused its attention on state and local governments. In 1973, Gov. Ronald Reagan introduced Proposition 1, the nation’s first tax and expenditure limitation (TEL). Designed to restrain state government’s growth, Proposition 1 lost at the polls in November 1973. Afterward, Governor Reagan presciently wrote in the National Review: “We have lost a battle, but this struggle will go on. The people will find a way to bring big government under control, to put a reasonable limit on how much of their income government may take in taxes. This idea will become a reality.”
He was right. Tax and expenditure limits inspired by Prop. 1 have become a reality. California voters subsequently approved Proposition 13, inspiring a nationwide tax revolt that has resulted in the passage of 28 tax and expenditure limitations.
The most successful of these is Colorado’s Taxpayer’s Bill of Rights (TABOR) amendment. Passed in 1992 and dubbed by Milton Friedman “a Proposition 1 look alike,” Colorado’s TABOR amendment limited the growth of state spending to no more than the rate of population change plus inflation. Thanks to TABOR, Colorado taxpayers received more than $3 billion in surplus revenue since 1992.
In 1994, Florida’s voters approved a constitutional amendment imposing a limit on the growth of state revenue. Unfortunately, the limit was linked to personal income growth – a far more generous limit than Colorado’s TABOR. This constitutional amendment has proven to be an ineffective constraint on the growth of state revenues and expenditures in Florida.
This study explores why Florida’s existing limit has failed to constrain the growth of state government. The study also examines how Florida would benefit from a more effective tax and expenditure limit – specifically, a measure similar to (but not identical to) Colorado’s TABOR amendment.
In Florida, such an amendment would (1) limit the growth in state spending to no more than the growth of population plus inflation; (2) ensure that surplus revenue above this amount is invested in emergency and budget stabilization funds or returned to taxpayers; and (3) require voter approval – “consent of the governed” – for any tax increases or any weakening of the amendment’s limits.
The study also includes a simulation showing how a TABOR amendment would have affected Florida had it been implemented a decade ago. The simulation shows that a TABOR in the form now being proposed would have constrained the growth of revenue and spending while also stabilizing the state budget over the business cycle.
