A proposed constitutional amendment Senate Republicans have titled the Taxpayer Protection Act tentatively squeaked through that chamber Tuesday, with a final vote expected on Wednesday.
Its fate in the House is even less certain.
Senate Bill 607, which would make three changes to the N.C. Constitution, passed the Senate on a 30-15 vote along party lines.
Proposed amendments must receive a supermajority of “three-fifths of all the members of each house” in order to be placed before the voters for ratification. Thirty votes is exactly three-fifths of the 50 senators. Five senators (four Republicans and one Democrat) were absent when the vote was taken.
The proposal would set a cap on the personal income tax rate at 5 percent (down from the current 10 percent), require lawmakers to build up a rainy day fund totaling 12.5 percent of the General Gund budget, and limit growth of year-to-year spending increases to the inflation rate plus growth in population.
Money from the rainy day fund could be used or the spending limit exceeded only with the approval of two-thirds of both chambers of the General Assembly.
If approved by the House, the proposed constitutional amendment would be on the ballot for ratification by voters on Nov. 8, 2016.
Sen. Brent Jackson, R-Sampson, the bill sponsor, said the supermajority vote requirements act as a “safety valve” for the constitutional check on spending.
“It gives the General Assembly the latitude to take extraordinary measures in extraordinary times, whether it be economical downturns or … natural disasters,” Jackson said.
“That’s an amazing threshold to reach,” Sen. Floyd McKissick, D-Durham, said, arguing against the supermajority needed to surpass the spending limit. “We don’t need to handcuff ourselves financially.”
Democratic opponents of the proposed constitutional amendment drew comparisons to Colorado’s Taxpayer Bill of Rights, which places similar restraints on spending increases along with constraints on tax increases. Colorado’s TABOR limits are even more stringent than those in Senate Bill 607, in that the Centennial State requires voter approval for tax increases.
Sen. Jeff Jackson, D-Mecklenburg, said that Colorado’s restrictions resulted in a “swift and severe reduction in education funding. He said the result of such restraints in North Carolina during an economic downturn could create a “constitutional conflict” with the sound, basic education requirement imposed on public K-12 schools by the N.C. Supreme Court.
“All we know is the last train that went on this direction went off the cliff,” Democrat Jackson said, referring to Colorado’s restriction.
Jon Caldara, president of the Independence Institute, a libertarian think tank in Golden, Colo., said that TABOR has worked well there.
“Schools here continue to get more funding than they did the year before,” Caldara said. “We don’t have a problem with underfunded schools.”
Caldara said that the requirement is flexible. “That is, government can grow to any obscene level that voters care for,” he said. “All the government needs to do to keep all the money they collect, and even raise more taxes, is to ask first.”
He continued. “This will force your legislature to do the one thing they despise, and that is do their job, and prioritize spending before they go off and try to raise taxes,” Caldara said.
Unlike Colorado’s requirement, S.B. 607 would not require voter approval to increase taxes or raise spending over the limit. It also does not include a provision in Colorado law requiring revenue surpluses to be returned to taxpayers.
Matt Mitchell, senior fellow at the Mercatus Center at George Mason University in Virginia, said that such methods are an effective way of containing government spending.
“The most effective kinds of limits are based on inflation plus population growth, and are constitutional instead of statutory, that focus on spending rather than revenue,” Mitchell said.
Mitchell said that the political process tends to encourage ever-increasing spending. “Majorities and coalitions have an incentive to vote for government programs that benefit them and put the cost on a majority,” Mitchell said.
Limitations like that in S.B. 607 tend to hinder that tendency, Mitchell said. “These are not exactly a panacea,” Mitchell said.
Other methods of containing spending include supermajority requirements for tax increases and giving the governor an item-reduction veto power, he said.
Earlier versions of the proposal separated the amendment into three provisions: tax rate limits; a spending cap; and a requirement to put money in the rainy day fund. State Treasurer Janet Cowell sent a letter to members of the General Assembly expressing her opposition to the proposed spending limits, saying that passage of that provision could hurt the state’s AAA bond credit rating.
“Due to the potential limitation on a state’s financial and budgetary flexibility, this type of legislation is typically viewed negatively by the rating agencies,” wrote Cowell, a Democrat.
She also said that supermajorities required to increase spending make it difficult for states to raise necessary revenue. “The taxing power of the state is especially important during times of emergency,” Cowell wrote.
Senate leader Phil Berger, R-Rockingham, said the Taxpayer Protection Act would provide a “barrier” to the normal tendency of government spending to grow.
“Is it a barrier that cannot be breached?” Berger asked rhetorically. “No!”
Berger noted that when natural disasters hit North Carolina, such as the hurricanes in the late 20th century, a proposal to spend the state’s rainy day fund to help with recovery efforts passed by a near unanimous vote.
While a final vote on the measure is planned in the Senate on Wednesday, it’s unclear how the House will treat the amendment. Andy Munn, deputy chief of staff for House Speaker Tim Moore, R-Cleveland, said the House leadership has yet to discuss the proposal.
Barry Smith (@Barry_Smith) is an associate editor of Carolina Journal.