Billions on the Ballot
By Pamela M. Prah, Staff Writer
Washington State is one of nine states without a state income tax. Bill Gates Sr., the father of the Microsoft founder, wants to change that.
Gates is lending his high-profile name and influence to a ballot measure that would tax the income of individuals who earn more than $200,000 and couples who earn more than $400,000. His son — the world's second-richest person - definitely falls into that category.
The elder Gates, who also co-chairs the Bill and Melinda Gates Foundation, says Initiative 1098 would generate $1 billion a year in new revenue dedicated to education and health care. He also says it would put an end to Washington being " the most regressively taxed state in the country ." If approved, the measure would gin up an extra $11 billion over five years by taxing 38,400 high-wage earners in Washington, while lowering certain business and occupation taxes and cutting property taxes by 20 percent. "The very future of Washington hangs in the balance," Gates says.
Opponents of Initiative1098 contend the measure would open the door to taxing not just the rich, but residents who earn all levels of income. They also say the measure, if it passes, would eliminate a key advantage the state has to lure businesses. "Don't Calitaxicate Washington," they plead.
Washington is one of several states where voters this fall will weigh in on ballot measures that, if passed, would have enormous fiscal consequences. Voters in California, Colorado and Massachusetts will take up tax questions that could expand or shrink the foundations on which future budgets are built. Drama awaits on the spending side of budgets, too. In Arizona, voters could blow a $450 million hole in the state's current budget if they reject two key measures this fall. And in Florida, voters will decide whether to save billions of dollars by relaxing limits on class sizes at schools.
In total, more than 140 statewide measures have qualified for the November ballot, according to the National Conference of State Legislatures. Stateline has compiled a guide to the most crucial ones to watch here .
The Gates-supported measure in Washington State is not the only one there with big money at stake. Washington voters also will consider whether to roll back higher sales taxes on candy , bottled water, soda and other products that the Legislature approved this year. If the measure passes, it would reduce revenue by an estimated $350 million over five years.
Yet another measure would close and privatize state liquor stores in Washington. If that were to pass, it would result in a $520 million hit to state coffers over five years, according to state estimates .
"We will be watching Washington," says Pete Sepp, executive vice president of the National Taxpayers Union, which advocates for limited government and opposes Initiative 1098. Sepp says there could be national implications if the soda and candy tax is repealed: It may signal a voter backlash against the sorts of targeted tax increases that states have turned to to weather their recent budget crises.
Big money in Massachusetts
In Massachusetts, sometimes dubbed "Taxachusetts" for its reputation for high taxes, voters will get the chance to cut them. One measure would reduce the general sales tax to 3 percent from 6.25 percent. Another would repeal the sales tax on alcohol .
Both measures were put on the ballot after the state Legislature last year increased the sales tax and eliminated an exemption for alcohol sold in liquor stores. Roll Back Taxes , the campaign committee advocating for the measures, says a sales-tax cut would "keep shoppers in Massachusetts — instead of driving them to New Hampshire's 0 percent sales tax."The nonpartisan Massachusetts Taxpayers Foundation opposes the sales-tax cut measure, citing "dramatic consequences" to the state budget. Already, the state is looking at a $2.5 billion deficit for fiscal 2012; the sales tax cut would double it to $5 billion. "That will be an extremely difficult budget to balance," says Andy Bagley, director of research at the foundation in Boston.
Scott Pattison, executive director the National Association of State Budget Officers, says he worries that when voters are presented with questions that so deeply impact revenue, they make decisions in a vacuum. "At least when the Legislature passes a budget, everything is relative to one another," Pattison says. "If you spend $10 million here, you may not be able to spend $10 million there."
Pattison, whose organization does not take positions on ballot measures, also notes that voters may not realize how revenue measures might affect a state's competitiveness. "If your taxes are too out of whack from your neighbor's," he says, "then it's a problem."
California, still without a budget for the current fiscal year and without a strategy in place for filling a $19 billion budget hole, will consider measures that could both help and hurt the state's bottom line.
Proposition 26 would require that new fees and charges win a two-thirds vote from the Legislature. That's the same threshold required of tax hikes in California. An analysis by the California Legislative Analyst's office says the measure could limit state and local government revenues and spending by billions of dollars per year, although the actual impact would depend on how often fee plans die as a result of the two-thirds vote requirement.
Another big-ticket measure would prevent the state from using local government and transportation funds for other purposes. If Proposition 22 passes, it would reduce state revenues by about $1 billion , equivalent to about 1 percent of total general fund spending. Advocates say the measure is needed because the state raided $5 billion from various local funds to balance last year's budget.
But other California measures have the potential of adding revenue to state coffers. Those include Proposition 24 , which would raise $1.3 billion by 2012 by repealing recently enacted corporate tax breaks. A proposed $18 vehicle registration fee would generate $500 million, about half of which would go to state parks and wildlife conservation. And a closely-watched measure aimed at legalizing, regulating and taxing marjuana would have big fiscal implications. If the measure passes, California could see hundreds of millions of dollars in increased tax revenue, as well as tens of millions of dollars worth of savings from no longer processing marijuana offenders through the criminal justice system.
Perhaps the most important budget-related measure Californians will consider this year isn't aimed at raising or reducing revenue. Rather, it would change California's budget process. As Stateline has previously reported , Proposition 25 would lower the vote threshold required for the state Legislature to pass a budget. Currently, lawmakers need to muster a two-thirds supermajority to pass a budget. If voters approve, lawmakers will be able to pass budgets with a simple majority.Colorado considers major cuts
Colorado voters blazed new ground almost two decades ago when they approved the country's first Taxpayer Bill of Rights limiting tax and spending increases. This year, they could make history again if they approve three tax-cutting measures. Combined, the measures would cost Colorado a whopping $2.1 billion, out of a general fund budget of about $7 billion.
As Stateline has previously reported , the three Colorado measures, if approved, would cut property taxes in half; eliminate most car registration fees and taxes for communications services, such as telephones, pagers and cable service; and cut the income tax rate from 4.63 percent to 4.5 percent. And in the first of its kind, one measure would prohibit the state from taking on new debt and restrict local governments' ability to borrow.
Sujit M. CanagaRetna, senior fiscal analyst at the Council of State Governments, says this year's measures will test voters on the most basic of questions: What do they expect of their state governments and what are they, as taxpayers, willing to fund?
Voters in Arizona offered an answer in May when they approved a temporary 1-cent increase in the state's sales tax. The estimated $1 billion in additional money is promised to education, health and human services and public safety programs, helping to avoid huge cuts.
In November, Arizona voters will be presented with another big budget choice: whether to take nearly $450 million set aside in separate funds for childhood health and land conservation, and put the money into the general fund. The governor and Legislature already have balanced this year's budget assuming a "yes" vote on both. So if voters balk, the state will have a big new deficit to address.
Similarly, Florida voters will decide whether to increase the number of students allowed per classroom. For example, the largest high school classes would go from 25 students to 30. According to Florida TaxWatch, a nonprofit group in Tallahassee, the state would have to spend about $4 billion over the next 10 years to comply with the lower student-teacher ratio. So if voters raise the limits, it would result in substantial budget savings.
It also would indicate how the recession has changed public opinion. The voters themselves approved the lower class-size limits eight years ago. At the time, they believed Florida could afford it. Come November, they'll get the chance to show what they think now.Victoria Kleger of the Pew Center on the States contributed to this report .