TABOR

Gerald Prante of the Tax Foundation has an interesting take on what TABOR means for the foundations of the American political system.

TABOR, for those unfamiliar with the term, refers to Colorado’s Taxpayer Bill of Rights provision that imposes exogenous limits on the amount state and local government spending can grow in a state. Similar provisions are being proposed in those two states. But is it necessary?

If government always acted in the best interest of society, TABOR would never be needed. Therefore, the supposed need for TABOR is derived from a lack of trust of the representative democratic system. TABOR is kind of like the Bill of Rights in the U.S. Constitution: the Founding Fathers imposed restrictions on Congress (representatives of the people) from passing laws that restrict speech, establish religion, etc. If the Founding Fathers thought that Congress would always do what’s in society’s best interest, we wouldn’t have needed a 1st Amendment that starts with the phrase “Congress shall make no law…” The Bill of Rights is inherently anti-democratic.

Maybe as a first-best solution (in a world of a purely benevolent government), the First Amendment isn’t the best policy. But it’s probably a second-best solution given that Congress isn’t to be trusted when it comes to actively regulating speech, religion, etc.

And that’s the ultimate question with TABOR. If government was purely benevolent, the first-best solution would be some optimal tax-spending mix. But if government is pre-disposed to get larger and larger (when left to its own devices) and be at a size that is far above optimal, a TABOR has the potential to improve societal well-being. It’s likely not to lead to a perfect outcome, but it shouldn’t be compared to what a perfect, purely benevolent government would do. It should be compared to what an imperfect government is actually doing (and likely to do in the future).

That being said, for TABOR to be successful at improving social well-being, it must be the case that there is a significant amount of waste in the state’s spending. If politicians aren’t interested in maximizing social well-being (which is the necessary condition for TABOR in the first place), then who is to say that the spending cuts they make in response to TABOR are going to be right ones?

If the politicians decide to cut funding for some wasteful project as a result of TABOR, then society wins. Resources that were being wasted are now being put to better use (via lower taxes). But if those politicians, in response to TABOR, cut spending that actually has a high marginal social value (higher than the total marginal cost from taxation), social well-being could be made worse off as a result of TABOR. (Just saying that because government spending / GDP fell that such a policy change is good is nonsense. It depends on what type of spending was cut.)

In summary, TABOR would undoubtedly improve social well-being if politicians cut the least valuable government service in response to TABOR’s enactment. But given that TABOR is necessary because we can’t trust the politicians in the first place to do what is right for society, what is the probability that they are going to cut spending in response to TABOR that has a value to society less than the taxes that TABOR would be cutting? That’s the second-best question for both TABOR opponents and TABOR supporters that is most important, yet rarely asked.

The main point here is one that is rarely brought up but extremely important. All government spending is not created equal. Some government spending is absolutely necessary (i.e. police, fire protection, and military spending), some is beneficial but not critical (education spending), and some is no better than putting money into a pile and burning it (subsidies for failing industries). Unfortunately, it seems that the more useless – or even harmful – the type of spending, the more effective a tool it is for politicians to buy votes from various groups (rather than representing the interests of the individual).

This brings us to the issue of TABOR as an “anti-democratic” measure – which it absolutely is, as is the Bill of Rights. But this anti-democratic nature is by no means a negative. Democracy, by its very nature, is anti-freedom. Democracy is rule by the majority, and if history has taught us anything, it is that a majority will frequently find cause to violate the rights of the minority. Freedom can only mean one thing: individual liberty. The concept of  “collective rights” is an absurdity. No group of people, no matter the number, can possess rights. Only individuals possess rights. And when we are dealing with questions of government spending and taxes, we are dealing with one of the most sacred category of rights: property rights. Any legislative body that has any control over its citizens property (i.e., any legislative body that levies taxes) must be subject to severe anti-democratic measures.