Election Day 2019 Brought Tax Policy to Voters’ Ballots
Despite pundits treating the off-cycle November 2019 elections like a mere skirmish preceding the 2020 elections, voters answered many important tax policy questions. In addition to legislative elections in Mississippi, New Jersey and Virginia – as well as Kentucky’s gubernatorial race – voters in Texas, Colorado and Washington decided the future of tax policy in their states.
Texas voters, by nearly 50 percentage points, banned the legislature from enacting personal income taxes by constitutional amendment. Texas has the distinction of being one of nine states without a statutory personal income tax. Consequently, the Lone Star State has seen explosive economic growth as job creators relocate from high-tax locales to take advantage of Texas’ competitive tax policy. Rich States, Poor States 2019 notes Texas has seen over 1.3 million new residents move from other states since 2008. How Money Walks reveals Texas has gained nearly $47 billion in net adjusted gross income (AGI) since 1992. Nearly $15 billion of this wealth came from high-tax California, New York and New Jersey alone. Now that 74% of Texas voters overwhelmingly approved Proposition 4, a supermajority of Texas legislators will be required to implement a personal income tax.
Colorado voters handily defeated a proposal to revoke every Coloradan’s right to a refund from excess tax revenue. Colorado’s Taxpayer Bill of Rights (TABOR) is the premier tax and expenditure limit practiced by any state. Not only does TABOR limit spending growth and revenue growth to the rate of inflation plus population, but it requires any revenue in excess of the growth cap be returned to taxpayers as a refund. Proposition CC would have suspended any refunds resulting from TABOR and instead authorize the legislature to spend the excess revenue on transportation and education projects. Fortunately, 54.7% of Colorado voters voted to defend TABOR and defeat Proposition CC.
Additionally, 51% of Colorado voters approved Proposition DD to legalize sports betting and tax house winnings at 10%. A new excise tax on sports betting profits is estimated to generate $29 million in annual revenue, and Proposition DD included a clause to devote that money to state water projects. TABOR also relates to this initiative, as it requires any new taxes or tax increases pass a voter referendum before they are adopted. Proposition DD demonstrates that TABOR reaches far beyond the horizon of legislative tax and fiscal issues and can demand public input on any number of policies in the name of keeping tax policy accountable.
Washingtonians advised the legislature against a lopsided tax code arbitrarily targeting select businesses. Washington State is unusual in that the legislature offers voters “advisory notes.” Advisory notes are non-binding ballot referendums used to gauge voter feeling on specific issues. Evergreen State voters gave their opinions on 12 advisory notes, including a variety of tax issues, but mostly on various business and occupation (B&O) tax surcharges passed by the Washington legislature during the 2019 legislative session. B&O tax surcharges on financial services, timber products, service industries, tour operators and travel agents were all voted down – except for Seattle-area voters who advised keeping all B&O tax increases. Washington voters also voted against a 0.58% payroll tax increase, redefining petroleum products as higher-taxed “hazardous substances,” and a graduated real estate excise tax. If the legislature goes against the advice of Washington voters and maintains each tax increase, Washington taxpayers will see their tax liability increase by roughly $2 billion annually.
Not all tax increase ballot measures were defeated, however. Washington voters upheld a $0.09 per milliliter tax on vapor products estimated to generate nearly $20 million in tax revenue annually.
Not all Washington ballot measures were non-binding, either. Initiative 976 limits annual vehicle license fees to $30, bases vehicle valuation on Kelley Blue Book value and repeals an annual user tax on electric vehicles. Without this user tax, electric vehicle owners will use roads without contributing to their maintenance, as electric vehicle owners do not pay fuel taxes. For this reason, ALEC legislative members voted unanimously to pass the “Resolution Supporting Equal Tax Treatment for All Vehicles” model policy supporting a user fee for alternative fuel vehicles to ensure state roads are properly funded.
Spokane-area voters held the line against a bigger local government by approving a ballot measure to ban any local income taxes. With the support of over 78% of voters, Spokanites affirmed the position held by voters statewide that income taxes have no place in the Washington tax code. Since 1933, the legislature has placed 10 referendums to enact an income tax before voters – each failing by nearly 10 percentage points. Spokane voters’ overwhelming rejection of a local income tax is yet another example of Washingtonians firm opposition to income taxes of any kind.
While the new progressive majorities in the Virginia General Assembly and the defeat of Kentucky Governor Matt Bevin (despite being named one of the best governors in the ALEC State of the States 2019 report) grabbed the most headlines on election night, the important tax issues decided by voters on November 5th exemplified the importance of any election cycle to state policy.