Opinion: California needs a fiscal rules revival
On Tuesday, California voters decide the fate of Proposition 30. If approved, the state’s top personal income tax rate would exceed 15%, higher than any state in the union. For years now, the Golden State has leaned into higher tax and spend policies, which has sent businesses and individuals packing. But it wasn’t always this way.
The following year, nearly 75% of voters wisely approved Proposition 4, also known as the Gann Limit. This amendment limited the growth of appropriations to population growth and the lesser of the Consumer Price Index or California personal income growth. Revenues that exceeded the limit had to be refunded to taxpayers within two years. Gann also applied to local governments.
The Gann Limit, however, exempted debt service, retirement costs, and unemployment insurance compensation. Unfortunately, voters approved numerous amendments throughout the 1980’s that weakened California fiscal rules. These amendments required mandatory refunds be spent directly on education, raised the Gann Limit to a weighted average of population growth and per capita personal income growth, and expanded the list of exemptions. Now these amendments are not worth the paper they’re printed on.
TABOR limits the amount of revenue Colorado lawmakers can retain and spend to a reasonable formula of population plus inflation growth. If the state government collects more tax revenue than TABOR allows, the money is returned to taxpayers as a refund. Since 1992, taxpayers have been refunded $8.2 billion.
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