This is the third of three appendices designed to support the conclusions in the
text that alternatives to putting fiscal pressures on higher education are unlikely
to be pursued in most states. In the context of structural deficits suggested by
the report, Appendix A suggests that demands for increases
(new initiatives) in the current service spending of other functions would put pressure
on higher education outlays. Appendix B describes the difficulties
of financing higher education by cutting baseline spending in other programs. This
appendix covers political, constitutional, and substantive objections to raising
taxes to finance either current services or new initiatives in any field, including
higher education. Reading it is not necessary for those who already believe that
most states are unlikely to increase major taxes for any reason.
POLITICAL COMMITMENTS TO NO TAX INCREASES
Over the three years from 1996 through 1998, state officials made substantial records
of reducing tax burdens. In each of those years, at least half of the states enacted
significant tax cuts. In each of those years, those reductions, net of increases
in a few states, caused tax collections to be at least half a percent below what
they would otherwise have been. These tax cuts, which were unaccompanied by cuts
in budgets required to maintain current services, put state elected officials in
extremely comfortable positions. They were able to deliver what appeared to be a
reduction in the demands that government placed on citizens through taxes. Incumbents
were able to campaign for re-election on the basis of sponsorship and/or votes for
a variety of highly visible tax cuts.
During the 1990s, cutting taxes became viewed as a clear route to possible electoral
successes. To campaign consultants and candidates, individual states provided strong
lessons showing the potency of the issue. In 1993, Christy Whitman produced a come-from-behind
win in her try to unseat the incumbent governor of New Jersey. Her signature issue
was a 30% cut in state income taxes. Her victory caused her campaign theme to be
copied by many of the gubernatorial candidates in 1994. They campaigned, many of
them successfully, on a platform emphasizing cuts in personal income taxes. Often,
they too picked 30% as the appropriate reduction. Nationally, most Republican candidates
for U.S. Congress ran for office, with considerable success, by referring to a document
called the "Contract for America," which also specified substantial tax
The off-year elections of 1997 in the two states that held elections for governor
provided a testing ground for political themes to be used by candidates in 1998.
New Jersey again provided lessons. Governor Whitman entered the campaign a heavy
favorite. She had delivered on her promise to cut income taxes, had avoided spending
cuts that alienated any major interest group, and had a scandal-free administration.
All this occurred at a time when the New Jersey economy was doing well. Despite all
this she barely won re-election against a little-known challenger with substantially
less campaign financing. The keys to his success were two signature issues. Both
were more in the nature of criticisms of the status quo rather than precise plans
to solve problems. The one-line criticisms were that New Jersey had the highest property
taxes and the highest auto insurance rates in the nation. Responding to the obvious
public response to these themes, Whitman and many legislative candidates made commitments
to seek property tax relief if they were re-elected.
There was no incumbent in the Virginia campaign of 1997 because that state limits
its governors to serving a single term. One of the candidates made his signature
issue the elimination of the "car tax." The tax is a local personal property
tax based on vehicle value that produced annual bills in excess of $500 for many
middle-income households. The other candidate initially called the proposal unaffordable
and stressed his spending priorities and a modest tax cut plan of his own. As polls
indicated the popularity of cutting the car tax, the other candidate reversed ground
enough to be able to endorse a large tax cut plan of his own.
The 1998 state campaigns reflected these apparent lessons from 1997; challengers
and incumbents alike, legislators and governors alike, included tax cut plans in
their platforms. Even governors who were viewed as likely to (and who did) win by
huge margins decided to include such promises (e.g., Governor Bush of Texas, Governor
Engler of Michigan, and Governor Thompson of Wisconsin). As a result of the 1998
campaigns, there is a widespread environment of state officials who have pledged
additional specific tax cuts. Those officials are clearly not going to be attuned
to considering tax increases.
Most elected officials, not to mention political consultants, believe that the
primary lesson of the 1992 presidential election was this: appearing to make a commitment
to avoid tax increases yet later endorsing them was the political kiss of death for
President Bush. This conviction fortifies the political wisdom that raising taxes
after promising not to do so has much stronger negative effects on voters than raising
taxes alone might have.
These lessons mean many state elected officials in the early parts of the next
decade will consider their support for tax increases in the context of their own
past promises to avoid them. Based on past examples, these officials consider support
for tax increase to be political suicide. These career concerns exist over and above
substantive reasons for opposition to tax increases -- which are substantial themselves.
CONCERNS ABOUT THE SIZE OF GOVERNMENT
Besides political concerns associated with raising taxes, a substantial percentage
of voters and elected officials believe that government is simply too large and intrusive.
Their perspective suggests that many things now done by government could be done
equally well or better by private enterprise in a competitive environment or by voluntary
organizations. Some people believe that certain activities of governments are better
not done at all.
For those with this view, the policy problem is to restrict the size of government
at all levels. Proponents of this perspective are realistic in recognizing the difficulty
in avoiding government spending that can be financed with current revenues. So they
consider the revenues themselves as the problem; they seek to cut into the revenue
stream, indirectly getting at the objective of curtailing spending and thus government
intrusiveness. As some advocates of this view put it, taxes are the root of the spending
tree, so killing the growth of spending means chopping into the root system. The
policies of choice for those with this perspective are to obtain tax cuts whenever
possible and to prevent any growth in tax revenues brought about through tax increases.
These positions are themselves formidable barriers to tax increases at the state
and local level. They have also led to creating constitutional barriers to tax increases
in many states.
MECHANISMS BARRING TAX INCREASES
In many of the states with the most serious problems of structural deficits, tax
systems differ from those of the majority of states because one of the three major
tax bases -- sales, income, and property -- is used much less or not at all. Some
of the barriers to adopting the "missing tax" and to expanding use of an
underutilized revenue source are built into state constitutions. For example, there
are barriers to adoption of income taxes in Florida and Texas, two major states without
them. Similar barriers exist to adoption of a sales tax in Oregon and some of the
other states without them. Restrictions preventing full use of property taxes, such
as large homestead exemptions, are part of the constitutions of many states.
In some states, opponents of tax increases have also built procedural hurdles
into the process for enacting tax increases. For example, tax increases of any kind
in Colorado, whether by local or state government, require voter approval. Some states
have requirements that state and/or local legislative bodies must have larger-than-majority
votes to increase taxes.
Many states have also adopted tax and spending limits that have the effect of
preventing the spending of tax collections that exceed a stipulated amount. The typical
limit relies on a base year and bars spending increases in excess of those required
to adjust the base-year spending for inflation and a measure of government workload,
such as population. The more generous of the limits restrict the spending growth
rate to the rate of growth in personal income.
Reaching the baseline funding level for higher education implies tax increases, but
is it reasonable to expect that state elected officials will enact such tax increases?
The simple answer is "maybe." Historically, state officials have produced
tax increases at about the level needed to maintain their current service budgets
when circumstances, such as recession, have appeared to make such action necessary.
On the other hand, to adopt such increases most elected officials will have to do
what they are loathe to do on principle and probably at least a third of them will
have to renege on campaign commitments.
Thus, whether or not state elected officials ultimately conclude that they must
raise taxes, they most certainly will not accept this conclusion easily. Having possible
tax increases on the table will set off a cry that all spending should be scrutinized
for possible savings, before raising taxes is even considered seriously. This logic
is bound to cause much more intensive scrutiny of state spending patterns than was
seen anytime in the late 1990s. Higher education cannot avoid at least a share of
this scrutiny proportional to its share of funding.