One constitutional provision has caused taxpayers unfairly to question the genuineness of the 1978 constitutional convention.
That provision mandates that the legislature give taxpayers a rebate or refund anytime there is a general fund surplus of more than 5% of the revenue received in the year just closed, provided this phenomenon occurs in two consecutive years. Taxpayers remain cynical not so much because the provision is in the constitution as much as the way lawmakers have handled the requirement.
Although the legislature initiated the mandated credit with a bang back in 1981 when each taxpayer was granted a tax credit of $100, the amount of the credit became less and less generous with each succeeding year. In fact, by the third year of handing out the credit, lawmakers forked over only $1 per person. It was not until the late 1980’s – 1989 to be exact – that the legislature was once more embarrassed into giving back a credit of $125 per person. Those were the days when the surplus in the general fund almost reached three- quarters of a billion dollars.
When the credit was only one dollar per person, many taxpayers bemoaned the irony of giving back a dollar when there were so many needs. In fact, as recently as two years ago, there were attempts to put a question on the ballot proposing that the mandated tax refund provision be repealed.
While it does seem silly to give back only a dollar, taxpayers should remember that those actions were much akin to Marie Antoinette tossing cake to the poor. While taxpayers only got a dollar back, lawmakers and other public officials continued to sit on millions of dollars. No doubt elected officials reasoned that, “after all, it is pretty darn hard to raise taxes, so why should we do the unthinkable thing of giving back those dollars to taxpayers?”
But that was part of the problem. All those surplus dollars presented temptation to lawmakers who were like a child in a candy store. It leads to excessive spending and devious ways to hide the money so the surplus wouldn’t look so big. So what can be done to correct this problem and really make the mandated tax refund provision work?
Well, last week we talked about setting up the rainy day fund where lawmakers would be required to set aside any amount in excess of 5% of revenues into a new “savings account.” The options include requiring that lawmakers set aside all of the moneys in the general fund balance over and about 5% into the rainy day fund or just part of the excess with the rest going back to the taxpayer. In any case, it would seem fairer to give back to the taxpayer what is excess revenue over and above the needs of keeping 5% in the general fund balance and meeting the funding needs of the “rainy day” fund. The constitution could be amended to mandate that ALL of these excess funds be returned to taxpayers.
Should the “rainy day” fund reach its cap or limit then all of the funds in excess of the 5% threshold that make up the cash balance of the general fund should be returned to taxpayers. This would not be unreasonable as there would be the 5% in the general fund balance to satisfy bond holders and there would be the savings account in the “rainy day” fund. With these kinds of reserves, the return of any “surplus” revenues in the general fund is the only right thing to do by taxpayers.
Had such a provision been in place in the late 1980’s lawmakers could have enacted substantial tax relief rather than being stymied by the financial condition of the state as they were this past session. Tax rates could have been lowered and pyramiding of the general excise tax could have been addressed. Instead the opposite occurred, lawmakers went over the state spending limit, created more government than taxpayers can afford and set the state fiscal outlook on a collision course.
Next week, we will take a look at the problem of the shifting shape of government which blurs and misrepresents the true size of government.