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States Could Feel Conservative Tax Pinch Even If Blue Wave Wins

States Could Feel Conservative Tax Pinch Even If Blue Wave Wins

(Bloomberg) -- Florida Governor Rick Scott, who boasts of cutting taxes dozens of times, has a chance to secure his legacy for years to come -- even if Democrats manage to sweep his party completely out of power.

That’s because the two-term Republican governor and U.S. Senate candidate is behind a ballot measure that would alter the state’s constitution to require that two-thirds of the legislature must sign off on any tax increases, compared with a simple majority now. If voters approve, it would create a a major hurdle to raising revenue in what’s already one of the least-taxed U.S. states.

States Could Feel Conservative Tax Pinch Even If Blue Wave Wins

The measure in Florida is part of a decades-long push by Republicans to make it harder for states to raise taxes, one that was inaugurated by the passage of California’s Proposition 13 two years before Ronald Reagan won the presidency. Similar proposals also appear on the November ballots in North Carolina and Oregon.

"If a future legislature wanted to turn Florida into Illinois or New York they better be sure they can get two-thirds of their colleagues on board," said Sal Nuzzo, vice president of policy for the conservative-leaning James Madison Institute in Tallahassee.

Fourteen states require more than a simple majority vote among lawmakers to enact new taxes or raise them, according to the National Conference of State Legislatures. The Florida amendment would impose the higher threshold on increases to existing taxes and fees as well as the introduction of new ones. Oregon voters will consider a similar measure requiring that three-fifths of lawmakers in both chambers approve revenue increases, while in North Carolina voters will consider making it unconstitutional to raise the personal income-tax rate above 7 percent.

Hands Tied

Opponents say such restrictions are a recipe for political paralysis or deep budget cuts the next time the economy lapses into a recession.

"It restricts future lawmakers -- even next year or in five years or ten years -- from making fiscally responsible decisions," said Meg Wiehe, deputy director of the left-leaning Institute on Taxation and Economic Policy. "Whoever is in charge of the state should be able to make decisions that are best for the state at that time."

Florida state Senator Kelli Stargel, a Republican in favor of the supermajority proposal, said the state weathered the last recession better than others and kept its AAA credit rating, all without an income tax.

If an unforeseen event were to happen that created the need to raise revenue, then lawmakers could likely meet the vote threshold, Stargel added. "To raise taxes, there needs to be an overwhelming reason," she said.

Legislatures with supermajority requirements have been the site of protracted political battles. California, now known for its fiscal stability, saw perennial fiscal crises until the state’s voters rolled back the two-thirds threshold for enacting a budget to a simple majority.

More recently, in Oklahoma, which requires a vote of three-fourths of lawmakers in both chambers to hike taxes, legislators struggled to cover budget shortfalls near $1 billion after oil and gas prices collapsed, said David Blatt, executive director of the Oklahoma Policy Institute. Rather than raise taxes, for years lawmakers enacted steep cuts to education and other services, he said.

It wasn’t until the threat of a teachers’ strike earlier this year that lawmakers passed tax increases -- their first in over 25 years -- to raise revenue for education funding, according to the Center on Budget and Policy Priorities.

Political Consequences

Oklahoma conservatives that were staunchly opposed to the tax hikes paid a political price, with a dozen Republican incumbents losing their primary election to more moderate opponents, Blatt said. "If politicians are even thinking about their own political survival, Oklahoma tells them that when you have a supermajority requirement in place it can have real political consequences," Blatt said. "It doesn’t allow you to govern, and the voters pay attention to that."

In North Carolina, the measure to lower the constitutional cap on the personal income-tax rate to 7 percent from 10 percent is a chance for Republican lawmakers in the Tar Heel State to exert their influence, even if they lose control of a legislative chamber in the midterm election. All 170 state seats are up for re-election this year, according to the N.C. State Board of Elections and Ethics Enforcement.

Cutting the maximum tax rate wouldn’t affect the state’s AAA credit rating, but it could "create unnecessary budgetary challenges" if the state experiences fiscal stress and needs to raise taxes, S&P Global Ratings said in a report. The state relies on income taxes for more than half of its general fund revenues. The income-tax rate is currently 5.5 percent.

North Carolina State Treasurer Dale Folwell, a Republican, said the change would provide better certainty to businesses thinking of relocating to the state. "As the keeper of the public purse, I would tell you if I had any concerns about this state’s ability to be solvent or to prosper," he said.

Other ballot initiatives will also gauge anti-tax sentiment. Arizona voters will decide on Proposition 126, a constitutional amendment that would ban the state and any local government from enacting new or increased taxes on any services, unless they were already in place by last year. Oregon voters will also decide whether to ban taxes on groceries. Washington voters will consider a measure that would stop local governments from enacting new taxes on certain food and beverages, a step seen as a response to Seattle’s new tax on soda.

Mark Hass, a Democratic state senator in Oregon, said tax-policy changes are too complicated to be decided by ballot measures. While "nobody" likes to raise taxes, making it tougher for lawmakers to raise taxes would be too limiting, he said.

"Say we have an earthquake, say we have a severe recession," Hass said. "There are emergencies that require governance. Maybe they do require a tax increase, maybe they don’t. If you want to keep tying people’s hands and their ability to govern on a day-to-day basis, we’re going to run into some problems."

To contact the reporter on this story: Amanda Albright in New York at aalbright4@bloomberg.net

To contact the editors responsible for this story: James Crombie at jcrombie8@bloomberg.net, William Selway, Michael B. Marois

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