Colorado’s Proposed Amendments 60 and 61, and Proposition 101 — Striking Fear In The Hearts Of Legislators and Bureaucrats

The Denver Post headline is fairly innocuous: “Denver leaders urge voters to reject ballot measures limiting property taxes, debt.”  But the quotes from local politicians reveal a bit of panic.  Councilman Michael Hancock — “These initiatives threaten to devastate our economy, kill jobs and drive business out of our state just at a time when we can least afford it.”  Councilman Chris Nevitt takes a more low key approach — “This is a catastrophe, wrapped in a disaster, garnished in insanity.”

What new insanity is this?  Two Amendments to the Colorado Constitution and one Proposition (a voter-initiated statutory change) are being proposed to Colorado voters in November.  None of them are a model of clarity, but the major terms, in my estimation, would do the following:

Amendment 60 would amend Section 20 of Article X of the Colorado Constitution to add a new subsection that rolls back and limits property taxes.  Most importantly, Amendment 60 provides that (i) property tax increases since 1992  without voter approval expire, (ii) electors can vote on property taxes where they own real property, (iii) all districts shall allow petitions to lower property taxes as voter-approved revenue changes; (iv) future property tax increases expire after ten years; and (v) anyone can file suit to enforce strict compliance with all property tax requirements of the new subsection, and (vi) with respect to such lawsuits successful plaintiffs shall always be awarded costs and attorney fees, districts shall receive neither, and “voter-approved revenue change(s) . . . shall always be strictly interpreted to favor taxpayer.”  There is some other stuff in there that I am sure terrifies the spenders, but these seem to be the broad-reaching changes (others would affect schools and certain enterprises more narrowly).

Amendment 61 would limit the ability of state and local authorities to incur debt.  As to the state, “[t]he state shall not contract any debt by loan in any form.”  In case that isn’t clear enough, another change would provide that the “state and all its enterprises, authorities, and other state political entities shall not borrow, directly or indirectly, money or other items of value for any reason or period of time.” 

As to local governments and other political subdivisions, “[w]ithout voter approval, no political subdivision of the state shall contract any debt by loan in any form. . . .  The ballot title shall specify the use of the funds, which shall not be changed.”  Future local debt must also be repaid within ten years. 

Finally, all current borrowing must be repaid, and “after each borrowing is fully repaid, current tax rates shall decline as voter-approved revenue changes equal to its planned average annual repayment, even if not repaid by taxes.” 

Proposition 101 would limit vehicle-related taxes and fees, state income taxes, and telecommunications taxes as follows. 

Vehicle Taxes

Prop 101 would decrease (over four years) the ownership tax to a token $2 for new vehicles and $1 for others.  Registration and license fees would also be reduced to no more than $10/year total per vehicle.  And the sales tax would phase out on the first $10,000 of the sales price of the vehicle.

State Income Taxes

The current state income tax is $4.63.   Prop 101 would reduce the rate to $4.5% for 2011.   The remainder of the language requires future rates to ratchet down “0.1% yearly, until reaching 3.5%, in each of the first ten years that yearly income tax revenue net growth exceeds 6%.”

Telecommunications Taxes

Banned on all telephone, pager, cable, internet or other telecommunication service customer accounts, except for 911 fees at the 2009 rates.

I can see why the legislators are freaked out.  Individually, these measures would devastate the plans of the powers-that-be to spend lavishly, or at all, on their pet programs.  I therefore appreciate the sentiment behind them. 

Take vehicle taxes as an example.  As is commonly noted, a vehicle is probably the second biggest expense that most of us will incur.  Currently, Colorado law imposes a sales tax on new and used vehicles, plus an annual “specific ownership” tax based on the MSRP of the vehicle at the time of the orignal sale of the vehicle as new.  Here is how it works.

The  Sales Tax is calculated on the net purchase price (total purchase price minus the value of any trade-in).  The % sales tax varies by location of resident.  For Denver, it is as follows:

State tax 2.90%
RTD tax 1.20%
City tax 3.62%
Total 7.72%

The Ownership Tax is based on the original taxable value of the vehicle.  For passenger vehicles, the taxable value is 85% of the MSRP when the vehicle was brand new and remains the same for the life of the vehicle.  The specific tax rate is based on the age of the vehicle from the date of manufacture and declines over time as follows:

YR1      2.1%
YR2      1.5%
YR3      1.2%
YR4      0.9%
YR5      0.45%
YR6      0.45%
YR7      0.45%
YR8      0.45%
YR9      0.45% 

After that, the ownership tax is a flat $3.oo per year. 

These taxes add up.  Assuming a new car MSRP of $30,000 and an original sales price of $27,000, a person who buys a new vehicle and drives it for ten years would pay sales tax of $2,084 at the time of purchase, and an additional $2,030 in ownership taxes during the life of the vehicle.  In addition, each vehicle is subject to annual license fees that the state estimates to be approximately $40-60/year. 

So taxes alone on a $27,000 car amount to over $4,100 — an effective rate of over 15%  on one of life’s major purchases (though some of it is incurred over time).  Here’s an idea, maybe we would not have to subsidize RTD trips quite so much if we didn’t make car ownership so expensive by taxing it so much.

Telecommunications taxes are also a favorite gripe of mine, since I sometimes work for telecommunications carriers and have a pretty good understanding of how these taxes work.  It is a well-kept secret that a good portion of telecommunications regulations, rates, fees, and taxes are  set so that some consumers are subsidizing other consumers.  That is not just their effect; it is often their express purpose.  Regulators and legislators love this, since most of the tax effect is hidden or described as a fee instead of a tax.  To the extent that it is a fee, it is often a fee being charged one set of subscribers to subsidize another set of subscribers.

Indeed, on NPR this morning there was a story about the new FCC report lamenting the fact that between 14 million and 24 million Americans lack access to broadband Internet services.  There is little question that the FCC is laying the groundwork for requiring telecommunications carriers to provide broadband Internet services to these people at affordable rates.  That means those who can afford broadband Internet services will have to subsidize those who currently choose not to spend their money on what is considered, at least to normal people, to be a luxury.  In an era in which the vast majority of people can afford to pay cable TV and wireless telephones, why should anyone have to subsidize the luxury of fast Internet for anyone else?  I could therefore support a ban on such taxes, especially since these taxes and subsidies are dishonestly hidden through rate-setting or calling them fees.

I also like the part of Amendment 61 that requires voter approval for certain debt and requires the “ballot title [to] specify the use of the funds, which shall not be changed.”  The requirement that the use of the funds not be changed after the vote is especially interesting, since it indicates a lack of trust in politicians on the part of the initiative’s supporters.  I wonder where they got the idea that politicians would try to game the voters by changing the use of funds after a vote?

There are other aspects of these proposals that I suspect I would also support after further study.  But overall, these proposals are dull instruments the true consequences of which we can only speculate about, although they would certainly have a devastating effect on the coffers of state and local governments.   As much as I would like to see a reduction in government and taxation, the provisions are too extreme and their impacts too unpredictable.  Let’s start with a scalpel, not these axes.

That said, Colorado politicians should take these proposals as a warning.  Taxpayers are tired of being viewed as bottomless ATM machines from which politicians can simply withdraw money whenever needed to pay for pet causes or to benefit pet constituents.  I, and many others like me, I suspect, cannot support these measures now.  But if our elected representatives do not begin to show restraint and maturity in spending the vast amounts of money they already extract from us, frustrated taxpayers like me might just conclude that we have no choice but to starve the beast.

 

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Published in: on July 21, 2010 at 11:46 am  Leave a Comment  

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