Oregon voters were the latest to reject a tax hike when state
legislators offered them one in a January 28 referendum. In a
near-record turnout, voters defeated a proposal to hike the state’s
corporate and individual income tax rates. A 10-point statewide
margin reflected a “No” vote in 32 of 36 counties. That rejection
of a government-proposed tax hike should not surprise most
Americans. They know that government already takes too much and
spends too much.
Oregon’s political establishment, however, apparently was
surprised by the vote in favor of budget constraint. After all, the
tax increase was supported by a broad coalition of labor unions,
business associations, environmentalists, and university
presidents. But Oregonians didn’t listen to those
government-dependent interest groups. Instead, they repeated their
historic reluctance to approve new taxes. Oregon voters haven’t
approved an income tax increase since at least 1930.
Oregon’s Ballot Measure 28 proposed a “temporary” three-year
income tax increase in an attempt to close the state’s budget gap.
Instead, higher taxes would probably have only fueled higher
spending. In addition, higher tax rates would have driven mobile
businesses out of the state and scared away the well-paid engineers
and scientists that are crucial to the high-tech industries that
every state wants today. With so many good alternative locations
for business development, states can no longer afford to have
uncompetitive tax systems.
Most voters recognized that pitfall, as well as the need to
protect their own pocketbooks. They clearly demanded that the state
budget be balanced by spending cuts, not tax increases. The Oregon
legislature had tried to scare voters by listing specific cuts that
would go into effect if Measure 28 lost, including cuts to highly
visible education, social services, and law enforcement
programs.
That’s the well-worn “Washington Monument” strategy — proposing
the most unpopular possible spending cuts if a tax increase isn’t
supported. In Oregon, alarmist media stories suggested that,
without the tax increase, the elderly, the disabled, and mentally
ill would be abandoned and that prisoners would be released from
overcrowded prisons.
Voters were right to be skeptical. In turns out that the alleged
spending cuts were not really cuts at all. As in other states, what
are often called “cuts” are just reductions in large projected
spending increases. If an overly optimistic budget assumed 8
percent spending growth that later gets trimmed to 4 percent, state
budget parlance refers to that increase as a cut. In Oregon,
spending will be 5.5 percent higher after the failure of Measure
28, in contrast to the 8.5 percent increase that would have
occurred with the tax increase. Clearly, that’s not a real cut.
This year’s spending increase comes after a decade of rapid
budget growth. Oregon’s per-capita, inflation-adjusted spending
rose 45 percent between 1990 and 2001. Based on our new survey of
state budget trends, that is the fourth highest increase in the
nation during the period. The upshot is that Oregon should treat
its budget woes as an opportunity to pare back the excess spending
built-up during the past decade.
One budget-balancing option would be for Oregon legislators to
offer voters a new referendum with a menu of spending cuts to
choose from. But politicians try to avoid such open-ended
democratic votes, as the ballot box is too unpredictable. Instead,
they like one-sided tax-hike votes that they try to control with a
big campaign war chest. Oregon’s Yes campaign, which focused on
radio advertising and an extensive grassroots effort, outspent the
No side by more than 16-to-1 and still lost.
The Yes campaign’s war chest was almost exclusively funded by
public sector unions, particularly the American Federation of
State, County and Municipal Employees and the National Education
Association. By contrast, the No campaign was largely invisible and
didn’t produce paid advertising until the campaign’s final
days.
A similar tax-hike rejection occurred in Virginia last November.
The state Republican and Democratic parties joined with business
lobbies to push for sales tax increases to build more highways. The
pro-tax state establishment outspent sales tax opponents 10-to-1,
yet the sales tax referendum was soundly defeated.
These crushing defeats on both East and West Coasts confirm that
the much-touted birth of a new state-tax increase movement has been
stillborn. If state politicians want to have such budget referenda,
they should listen to the message taxpayers are sending them,
rather than trying to use referenda simply to avoid the heavy
lifting of serious budget reforms.
