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States' Tax Supermajority Vote Rules Challenged by Changing Politics, Economy 

Posted on Feb. 25, 2020

Recent attempts in several states to push back against supermajority vote requirements for tax increases could preview other efforts to combat such laws.

There is ongoing litigation in Nevada over the passage of tax extensions through simple majorities in 2019. In Oregon, Democrats appear to have established that tax base expansions don’t require the traditional three-fifths vote margin. California local governments and activists are suing to allow some local tax measures to pass without the support of two-thirds of voters. Meanwhile, Oklahoma lawmakers in 2018 pushed to reform the state's supermajority rule, and progressives in Colorado are seeking to overturn the Taxpayer Bill of Rights, which mandates a public vote to approve higher taxes.

“All across the nation, you see progressive efforts to narrow the restrictions on the ability to increase taxes,” said Michael Schaus of the Nevada Policy Research Institute. “Continually, you’re seeing legislatures, especially progressive legislatures, [push] for more autonomy, less restrictions on what they’re able to do.”

Tax policy experts say different factors could be creating opportunities and motivating opponents to challenge those supermajority vote rules. Also, there are trends that could threaten supermajority requirements in the long term, including shifts in states' political landscapes and evolving economic circumstances that threaten traditional tax bases, experts say.

Legal Fights

Around 15 states have supermajority vote requirements for some or all tax increases. While tax watchdogs argue that those rules help protect citizens from excessive taxation and fiscal irresponsibility, progressives counter that they hobble policymakers. Some tax experts also question their overall success in curtailing state spending. While supermajority requirements have largely endured in states where they've been enacted, recent events show that they could be vulnerable.

The Oregon Legislative Revenue Office in 2016 determined that a state supreme court ruling should be interpreted to exempt base-broadening legislation from the state’s supermajority vote requirement for tax increases, even though such bills had traditionally been given a three-fifths vote. The Democrat-led legislature in 2017 relied on that position to approve market-based sourcing for sales of services with simple majority votes. Republicans argued that base-broadening bills are a form of tax increase, and business groups backed a ballot initiative to clarify that such legislation must pass with a supermajority vote. The measure was rejected by voters in 2018. Republican senators also filed suit contending that 2018 legislation decoupling from the federal 20 percent passthrough deduction — also approved with simple majority in light of the Legislative Revenue Office position — was a tax bill requiring a three-fifths vote, but the court rejected that argument in March 2019.

In Nevada, legislative attorneys in 2019 determined that Democratic legislators’ extension of payroll tax rates and a DMV fee didn’t require a two-thirds vote, despite language in the state constitution proscribing such a margin for passage of any bill that “creates, generates, or increases any public revenue in any form.” Senate Republicans have sued to invalidate the extensions.

The cases highlight a key problem with supermajority vote requirements, according to Darien Shanske, a law professor at the University of California, Davis. Laws designed to make tax increases difficult can push governments to seek to raise revenue through less direct means, he said, adding that can lay the groundwork for legal fights over what constitutes a tax increase under such laws.

“Arbitrarily making one particular [revenue] mechanism more difficult, as in the case of tax increase limitations . . . only leads to strange results,” Shanske said. “If a government can’t raise a tax, it might instead raise a fee” or change the tax base, he added.

Katherine Loughead of the Tax Foundation said supermajority rule language isn't always clear, although some rules have more precise wording to counter efforts to get around them. She said opponents of supermajority rules have had some instances of success in recent years in getting judges to limit the types of bills and regulations that are subject to supermajority requirements and other restrictions on legislatures’ taxing authority.

In addition to the Oregon and Nevada cases, Republican lawmakers in Arizona sued to overturn a new hospital assessment under the state's supermajority rule, but the state supreme court determined that the assessment wasn't a tax. Opponents of the charge, including the conservative Goldwater Institute, argued that the 2017 ruling weakened the state’s two-thirds requirement.

Loughead said such fights will continue to crop up.

“I don’t expect litigation to end soon in states with supermajority requirements,” Loughead said. “This will continue to be an issue.”

Schaus said he believes Nevada's recent tax extension wasn’t just a push to pass specific tax bills with a simple majority, it was also an intentional effort to push back against the state's supermajority rule.

Although Nevada Democrats and Gov. Steve Sisolak (D) argued that the tax extension was necessary for education funding, “the elimination of the modified business tax sunset was done despite the fact that they had a budget surplus,” Schaus told Tax Notes. “They weren’t wanting for more money, and they still went forward. . . . To me, that was very obviously them testing the limitations of the two-thirds requirement.”

Schaus said that if Republicans lose their suit over the payroll tax extension, it could set a precedent that would weaken the broadly worded supermajority rule in Nevada. “We’ve always assumed it covers everything,” he said. “If, all of a sudden, there [are] exceptions, it’s going to create real uncertainty going forward.”

In California, the state supreme court ruling that could upset that state's supermajority rule for local special tax increases, California Cannabis Coalition v. City of Upland, found that some constitutional rules for local ballot measures don't apply to those that qualified through signature gathering. Observers noted the same language reviewed by the court in California Cannabis was also used in the portion of the constitution that requires voter supermajorities to approve local special taxes. City leaders and activists in San Francisco, Oakland, and Fresno seized upon the decision, seeking to let special tax measures qualified by local grassroots efforts pass with simple majorities, spawning multiple lawsuits.

“Some cities ran for the opening as fast as they could,” said David Kline of the California Taxpayers Association. “I would say it’s a mixture of some of the pro-tax groups being just adamantly opposed to any higher requirement for taxes,” particularly in California, and also because “some cities are facing cost pressures” resulting from public employee benefits and other spending, he added.

The Howard Jarvis Taxpayers Association, the tax watchdog that played a central role in passing California’s supermajority rules, is involved in the lawsuits and argues that California Cannabis shouldn’t be interpreted to affect the local special tax supermajority requirement. The association's attorney, Laura Dougherty, said some local leaders in San Francisco worked to have tax proposals backed by city/county commissioners be qualified via grassroots efforts just to have a chance at circumventing the two-thirds requirement.

“When they figured they couldn’t get the two-thirds vote, they transformed them into citizens’ initiatives,” Dougherty said. “It’s a matter of form over substance.”

Superior court judges have issued different rulings on whether California Cannabis exempts local special taxes from the supermajority rule — four cases are on appeal, while another is pending at the trial court level. The issue is anticipated to end up before the state supreme court.

Mounting Pressures

Progressives generally oppose supermajority requirements. However, there are a variety of factors that could motivate present and future challenges to supermajority rules, not just legally, but also legislatively.

“If anything, the age of some of these laws is contributing to some policymakers wanting to revisit them” because of the potential obstacles they pose to updating states’ tax regimes, Loughead said.

Most such laws are decades old. Just like laws to promote transparency or impose restrictions on government authority, “over time, you see politicians and institutions trying to chip away at those protections,” according to Schaus.

Changing political circumstances could also play a role. Notably, Oregon has gotten bluer since voters approved its supermajority rule in 1996, while Nevada — which approved its law in 1994 (and again in 1996) — has also shifted politically, with the Democratic Party recently claiming control of both chambers of the Legislature in 2017 and winning the governorship in 2018. As politicians who favor progressive tax policies and new spending gain more power in some state legislatures, the friction between them and the laws intended to limit their ability to enact their agendas will only grow, said Carl Davis of the Institute on Taxation and Economic Policy

Supermajority rules were intended “to restrain future legislators, and now these legislators are seeking to grapple with the rules put in place” and get past them, Davis said. 

A notable fight over the supermajority rule occurred in Washington, where voters approved a two-thirds vote requirement for tax legislation in 1993 and several times after, in response to legislators suspending the rule. In 2013 the state supreme court held that the supermajority rule couldn’t be passed via initiative, striking down the requirement.

In addition to supermajority rules, progressives in various states continue to fight against other long-standing restrictions on taxes, such as a concerted legal battle to have the Washington Supreme Court overturn its precedent banning progressive income taxation. Other recent examples include Colorado Democrats’ efforts to reform TABOR in 2019 to allow the state to keep “excess” revenue and progressives' bid to repeal it in 2020 (as well as an ongoing federal suit to overturn it), and a push by activists and unions in California to end the state's long-standing Proposition 13 restrictions on business property tax growth in 2020.

Alan Auerbach, a tax expert at the University of California, Berkeley, told Tax Notes that the national political environment could also be catalyzing support for progressive tax policies and tax increases, which could feed into fights over supermajority rules. There's an “increased willingness of Democrats to push for tax increases without fear of voter reaction; that's certainly apparent at the national level, based on the positions of the presidential candidates,” he said. The political shift could be partly because of “economic circumstances (increasing inequality) and in part in reaction to the recent federal tax cut,” including the state and local tax cap's perceived implications for blue states, he added.

However, challenges to supermajority rules don’t come only from Democrats — recent proposals to reform Oklahoma’s supermajority rule were pushed by Republicans in 2018, including measures to reduce the vote requirement for approving some or all tax increases from three-fourths to two-thirds or three-fifths. Although those bills weren't enacted, lawmakers who supported them argued that lower vote thresholds have become necessary to address the state’s budget and revenue problems. The state’s fiscal situation had gotten severe enough that lawmakers approved a tax increase for the first time in decades to fund education spending, in response to a teacher walkout.

Concerns about future revenue shortfalls may have also bolstered concerns regarding rules restricting taxation, in particular because of some states’ experiences during the Great Recession, according to Megan Randall of the Urban Institute.

“Even though we’re not in a recession right now, there’s a lot of talk about readiness for the next recession,” Randall said. “During an expansion, when you’re having a bit of a boom . . . some places aren’t able to save as much” as a result of restrictions on their revenue-raising powers, she added.

Supermajority rules and other restrictions “can also dampen states’ ability to respond during a recession” with tax increases to avoid service cuts, according to Randall. Also, even in the current economy, some states “are experiencing a lot of pressure on the spending side of the budget, in particular, healthcare and Medicaid spending” that compounds policymakers’ concerns.

Randall noted Colorado voters reining in TABOR in 2005 to counter revenue loss from a “ratcheting down” effect triggered by the previous recession, and last year’s failed TABOR reform effort. Oregon leaders have also recently sought to curtail the state’s "kicker" tax refund to keep some of the state revenue that exceeded projections.

Loughead said the previous recession could also motivate legislative efforts to get around supermajority rules and other restrictions because it exposed the volatility of some states’ tax regimes, particularly those dependent on personal and corporate income taxes. That, coupled with the growing service and digital economy, has fueled states’ desire for tax base broadening.

States “seeking new revenue are turning to new products and services,” and efforts to tax those new transactions “will continue to play more of a role in the debate about supermajority requirements” and other restrictions on taxing authority, Loughead said.

Shanske also noted that under California’s strict supermajority rules, even last year’s federal conformity legislation — parts of which focused on technical changes — required a supermajority vote, underscoring the potential burden of such rules.

Randall said supermajority rules’ restrictions on states’ flexibility and adaptability over time create a strong motive for some lawmakers and activists to challenge or find a way around them. “It’s not surprising to me at all [that] other state policymakers or interest groups at the state level are trying to find those doors out of the labyrinth,” she said.

No Clear Verdict

Critics note that it’s unclear whether supermajority requirements are effective at reining in government spending. Depending on how they’re designed, they can push states “to raise revenue through debt” during hard times, saddling them with long-term liabilities and interest, Randall said. 

While enthusiasm for passing supermajority vote requirements doesn’t appear to be as strong as in previous decades — experts said some passed in the 1970s and there was also a wave in the 1990s (Kentucky passed one in 2000) — such rules are still being proposed. For example, Ohio Republican lawmakers have introduced S.J.R. 3, which would ask voters to approve a measure requiring a two-thirds vote for income tax increases.

Samantha Waxman of the Center on Budget and Policy Priorities told Tax Notes that while proposals to require supermajority votes or restrict tax increases crop up each year, most of them “don’t make it anywhere.”

But some have passed in recent years. Wisconsin in 2011 enacted legislation requiring a two-thirds vote for income, sales, and franchise tax increases, and Florida voters in 2018 approved a constitutional amendment requiring a two-thirds majority vote to approve tax hikes.

In 2015 Washington voters approved a ballot measure to pressure lawmakers to seek a supermajority rule, but the state supreme court overturned it

Also, progressives that continue to challenge supermajority rules and other restrictions on tax bills are facing significant obstacles. State constitutional amendments to allow local tax increases to be enacted through simple majorities have been defeated in the California State Legislature. Last year’s Colorado TABOR reform measure was rejected by voters. Tax watchdogs say supermajority rules and other restrictions are still popular in state polls.

“So many voters in the state [say] they support the two-thirds” rule, Kline said of California voters. “There’s a lot of Democratic support for keeping the two-thirds majority” as well. He said that if the state supreme court holds that local special tax ballot measures qualified by signatures need only a simple majority for passage, there are good odds that voters would amend the constitution in response.

Schaus said that “a handful of Democrats around [Nevada] . . . really dislike the idea of raising taxes,” and that progressives don’t have strong support for tax increases.

Shanske said that even if supermajority rules are revised by courts or legislatures, even liberal Democrats may not generally push for their outright repeal. Many “understand [that] you have to be careful with taxes for all kinds of reasons, so I’m not at all sure we’d see, in the future, new progressive majorities getting rid of these limitations” in California, he said. “Even good progressives don’t love paying more taxes.”

Tax watchdogs defend supermajority rules as a measure of protection for taxpayers against punitive taxes passed by slim majorities. Kline said California’s local tax supermajority rule requires governments “to get a little more community engagement [to] get a two-thirds vote,” which “clearly isn’t an insurmountable [requirement], considering California’s taxes.”

Conservative groups also argue that lawmakers should rely on controlling spending during good times and do more to save surpluses, rather than blaming tax-restricting measures for funding problems during downturns.

But all sources agree that the fight over restrictions on tax bills won't fade away anytime soon.

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