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PLAIN ECONOMIC SENSE
For release after March 15, 1999
Column 372
Evidence on Super Majority Voting Rules to Raise State Taxes
By Mark A. Edelman
Extension Public Policy Economist
Iowa State University Extension to Communities
Depending on the study reviewed, 11 to 14 states have implemented super majority requirements similar to those proposed as amendments to Iowa's Constitution and 36 to 39 states have not. The Iowa proposal would require a 60 percent super majority vote in the legislature to pass bills increasing taxes, rather than the simple majority now required.
Contrary to recent written statements by some legislators, more than one empirical analysis of the impacts in states with super majority requirements were available for quite some time before the Iowa Tax Education Foundation (TEF) released its analysis in January 1999. It is informative to compare and contrast the various studies because reviewing only one of the studies may present a biased picture.
The first study I'm aware of was done by the Heritage Foundation in March 1996. The Heritage Foundation describes itself as a Washington-based think-tank "whose mission is to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense." Its report looks at seven states that have had super majority requirements in place for a number of years--Arkansas, California, Delaware, Florida, Louisiana, Mississippi and South Dakota. It found that five of those seven states experienced faster economic growth than the average state and concluded that super majority voting rules lower taxes and create faster economic growth.
The second study was released April 1997 by the Center on Budget and Policy Priorities. This center is another Washington-based institute and describes itself as "a nonpartisan research organization and policy institute that conducts research and analysis on a range of government policies and programs, with an emphasis on those affecting low- and moderate-income people." While the Center is regarded as being more liberal than the Heritage Foundation, the Center's web site does list an endorsement by former Senator Bob Dole--who is not particularly liberal.
The Center's study concludes that the Heritage study was flawed in four ways. Only one measure of economic growth was used. Heritage considered only state level tax changes rather than changes in state and local revenues, despite the capacity of states to shift costs and responsibilities to local governments. Heritage compares years with two different points on the business cycle. The beginning year was 1980, a year of economic downturn into a recession. The end point was 1992, a year of economic recovery following a recession.
The Center's analysis shows that five of seven states with super majority requirements experienced lower than average economic growth measured by changes in per capita personal income between 1979 and 1989. Four of seven states with super majority requirements had lower than average economic growth by changes in Gross State Product from 1979 to 1989. Six of seven states with super majority requirements had higher than average growth of state and local revenues as a percent of personal income from 1979 to 1989. Depending on the years selected, their data show that states with super majority requirements do not have faster economic growth. Thus the conclusions of the Center's study are opposite those of the Heritage Foundation.
Furthermore, the Center's study says that factors affecting state economic growth are far more complex than proponents of super majority requirements typically acknowledge. Such factors include the interplay of state resource endowments, state services, labor force skills, location and level of public investment, among others. "A far more sophisticated analysis would be required to discern any effect super majority requirements might or might not have on state tax burdens or state economies," states the Center's report.
The last statement tends to question validity of the simplistic methods used in both of the previous studies. Most professional economists would tend to agree. In fact, several economic studies conclude that it is difficult to say much at all about the economic growth resulting from relatively small changes in state taxes or economic development incentives because the effects are drowned out by macro trends and underlying structural factors.
This says a lot about why picking one or two sets of years for comparison of increases in education spending, bond ratings or property taxes represents a potentially inaccurate picture with inaccurate conclusions. The most recent study was released in January 1999 by the Iowa Tax Education Foundation (TEF), which is self-described as the "education and research arm of Iowans for Tax Relief."
For more than 20 years, Iowans for Tax Relief has been committed to adding revenue and spending limits to Iowa's Constitution and its affiliate has become the largest distributor of political action committee funds in state legislative races. According to their materials, the TEF study analyzed nine states that either had super-majority voting rules or that adopted the rules during the time period of analysis.
A rigorous analysis looking for causal impacts resulting from the implementation of super majority voting requirements would have excluded the three states that adopted the rules during the analysis period because the impacts are not likely to show up until a few years after implementation. However, with so few states to analyze, dropping three states could have changed the numbers significantly either way. The point is that much of the study's reported change in bond ratings, property tax increases and state education spending that TEF credited to the super majority voting rules is likely to have been due to a multitude of factors other than the passage of super majority voting rules.
Policy decisions are made based on information available to decision-makers at the time of their decisions. In the absence of a more rigorous analysis, the "quick and dirty" approaches from potentially biased sources are often used as a substitute for no information at all.
Edelman is a professor of economics and an extension public policy specialist at Iowa State University.
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