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Tax and Expenditure Limitations

In an effort to rein in state spending and create greater accountability measures, Tax and Expenditure Limitations (TEL) are effective tools to put the power of government back into the hands of taxpayers. The most recognized form of TEL is Colorado’s Taxpayer’s Bill of Rights (TABOR).

An effective TEL is a constitutional limit on expenditures/revenues to a ratio of population growth plus inflation growth and allows taxpayers to approve or reject all tax increases proposed by the state legislature, placing them in the driver’s seat in the state budget process. One important element is the reinforcement of democratic principles, embodied in the ability of citizens to check the power and size of their government.

Most importantly, enactment of a TEL would force the state government to live within its means and not grow exponentially beyond its intake of revenue.

Colorado's TABOR still the Model

Colorado’s TABOR still serves as the best model for the nation. Passed in 1992, the Taxpayer Bill of Rights mandates three broad issues:

revenues can increase no faster than inflation plus population growth (which because the state has a balanced budget requirement effectively functions as a spending limit);
a supermajority vote of the legislature is required to raise taxes;
and any surplus revenue over the spending cap is immediately rebated to taxpayers each year.

Despite its weakening in 2005, when the narrowly passed Referendum C permitting the state to retain and spend $3.7 billion in surplus revenue above the TABOR limit, rather than rebating that money to taxpayers after a misinformation campaign of TABOR opponents who falsely blamed TABOR for the state's budget woes.

The real culprit of Colorado’s budget woes was Amendment 23: a misguided educational mandate that forced government to annually increase education spending by at least the rate of inflation plus one percentage point for FY 2001-02 through FY 2010-11, and by at least the rate of inflation thereafter, regardless of economic conditions and at the expense of other programs.

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CFA supports efforts around the country to implement stringent tax and expenditure limitations to promote fiscal restraint and help government to live within its means.

The American Legislative Exchange Council has endorsed model legislation which is available upon request.