The North Carolina Senate has approved a Taxpayer Protection Act (TPA) by the required three-fifths vote. The measure approves amending the North Carolina Constitution to place caps on income-tax rates and spending growth while requiring lawmakers to set aside money in a rainy-day fund to guard against unforeseen fiscal or natural disasters.
I have no idea whether the House will take up the measure this late in the session. If it does, I’d recommend modifying some provisions. But here’s what I do know: by moving its TPA, the Senate has done a masterful job of provoking liberal politicians and commentators into making some truly silly, uninformed, and panicky claims.
The most ridiculous claim was to suggest that the TPA was anti-democratic. Uh, it’s a constitutional amendment. Lawmakers in the General Assembly can only place it on the ballot. It would take a majority vote by the people — quite literally a democratic action — to place the measure into the constitution. Perhaps what the Left meant to say was that imposing fiscal caps and savings requirements this way would be anti-republican. That is, it would substitute direct democracy for deliberative action by elected representatives. But I doubt the individuals in question actually appreciate or care about the distinction.
Most modern conservatives favor a mixture of democratic and republican institutions. We believe that it is appropriate for the public to cede day-to-day policymaking authority to elected representatives, rather than attempt to hold Athenian-style assemblies or New England town halls to pass all laws and budgets.
However, we believe the people themselves should reserve the right to vote directly on some matters, particularly when they involve long-term matters such as bonded debts. Moreover, we strongly believe that written constitutional safeguards are absolutely essential to keep the public interest from being subverted by special interests, particularly when it comes to tax and budget policy. Such constitutional safeguards are properly placed, removed, or modified only by voter referendum.
The North Carolina Constitution already has many such fiscal guardrails, including a balanced-budget rule, a public-purpose limit on the exercise of the taxing power, and a maximum income-tax rate of 10 percent. Each got there through democratic means. The TPA would construct additional guardrails by the same means.
Let’s talk about those guardrails. Six states — Alaska, Colorado, Nevada, Ohio, Utah, and Washington — already limit spending or revenue growth to some combination of population and inflation, the first two by constitutional amendment and the rest by statute. Many other states (including North Carolina) have either constitutional or statutory caps based on growth in personal income, a much looser standard that imposes no real budgetary discipline according to most empirical research.
While liberal critics mostly attacked the TPA spending cap, it’s really the other two provisions that need modification. The amendment sets the maximum income-tax rate at 5 percent by 2020, lower than the current 5.75 flat rate. While I’d like to see income taxes further reduced, I don’t think the constitution should be used as a marker for future tax-cut legislation. Instead, why not cap the rate at 5.75 percent? That would serve to protect the historic tax reforms of 2013 from future subversion by special-interest lobbies. Georgia already has a similar constitutional cap, set at 6 percent.
As for the rainy-day fund, the Senate’s TPA requires annual deposits of 2 percent of the General Fund budget until the rainy-day reserve reaches 12.5 percent of budget. A two-thirds majority of both chambers would be required either to forego this minimum deposit or tap the fund during emergencies. While savings reserves ought to be constitutionally required, the 2 percent minimum seems too strict to me — and is the one thing that might, indeed, give the bond-rating agencies pause. Although they generally like spending restraint and savings reserves, they want assurance that states have sufficient funds available to pay debt service first.
North Carolina conservatives have long favored democratic checks on the power of politicians, including a Taxpayer Protection Act. We only disagree a bit on details. Something else we agree on is that many on the Left desperately need refresher courses in constitutional government and public economics.
John Hood is chairman of the John Locke Foundation. Follow him @JohnHoodNC.