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State Supermajority Requirements: A Good Idea at the Time?

Posted on Apr. 10, 2020

In most states, enactment of new taxes or increases in existing ones can be approved by a simple legislative majority. Other states go further. As of 2018, 15 states require a legislative supermajority in both chambers to enact new taxes or increase existing taxes. The supermajority requirement varies from state to state; seven states require a two-thirds majority, five states require three-fifths, and three states require a three-fourths majority. Colorado imposes an additional requirement that the tax measure be approved by the voters. Taxes subject to the supermajority requirement also vary. Of the states with supermajority requirements, 12 require supermajorities for all taxes, while Arkansas, Michigan, and Wisconsin make exceptions. Arkansas subjects all taxes to supermajority approval except for sales and alcohol taxes; Michigan’s supermajority requirement applies only to property taxes; and in Wisconsin, a supermajority is required for sales, income, and franchise taxes. At one time Florida’s supermajority requirement was limited to the corporate income tax, but it was extended to all taxes and fees, as well as tax increases, in 2018.

Supermajority requirements for taxes date back 86 years. In 1934, Arkansas was the first state to require a supermajority specific to tax legislation — the property tax, beer tax, cigarette tax, severance tax, corporate and individual taxes, and the motor fuels tax. Taxes enacted after that year require only a simple majority.1 Arkansas enacted its sales tax in 1941 and its use tax in 1949. Since then, the sales and use taxes have been increased six times. By contrast, the income tax was increased in 1971, the first since 1929. In the ensuing years after Arkansas implemented its supermajority requirement, only five states followed its lead; Louisiana was the first in 1966, and Delaware the last in 1980. The 1990s, however, saw a flurry of states implementing supermajorities, with nine states joining the pool between 1992 and 2000.2

What’s So Great About Supermajorities?

Dean Stansel, formerly a fiscal policy analyst at the Cato Institute, explains that a supermajority requirement for tax increases simply means legislators “will have to reach a broader consensus before doing so.” Moreover, he claims, “there is evidence that supermajority requirements have at least helped to restrain the growth of taxes,” pointing out that “from 1980 to 1996, state tax burdens as a share of personal income increased by 1.1 percent in states with supermajority requirements, [while] taxes rose five times faster in states without such requirements.”3 According to the Hoover Institution, a study conducted by the Heritage Foundation found that between 1980 and 1992, “tax revenues grew about 20 percent less in supermajority states than in other states, while spending grew nine percent less.” Further, “economic growth in supermajority states was eight percent higher than in other states, and job growth was five percent higher.”4 Americans for Tax Reform, an antitax group best known for its Taxpayer Protection Pledge, which stands as a written record of a politician’s rhetoric to oppose new taxes or tax increases, claims that voters have embraced supermajorities. The group explains that in Florida, Nevada, Oregon, and South Dakota, where supermajorities were put in place by referendum, the proposals “received over 70 percent of the vote.”5

However not everyone shares their enthusiasm. Critics of supermajorities counter that the requirement has consequences. They say the requirement hampers a state’s ability to raise revenue for government obligations — such as providing fundamental services to residents — or fund infrastructure projects. Samantha Waxman, a state fiscal project policy analyst at the Center for Budget and Policy Priorities, said that “in supermajority states where lawmakers can cut taxes with a simple majority, but need supermajorities to increase taxes, [it] creates an imbalance that makes it hard for lawmakers to address those big unmet needs in their communities, like healthcare and schools.”

There are other consequences for supermajority states, too. Since it’s difficult for lawmakers to increase taxes or repeal tax breaks, they may opt to raise fees and other types of revenue not subject to the supermajority requirement, such as tuition at state schools. The state may also provide less support to local governments, which could force a local government to raise property taxes. Supermajority requirements also negatively affect a state’s ability to float bonds for capital improvements. Because a supermajority state’s flexibility in raising revenue is constricted, investors and bond rating agencies see these states as less trustworthy than states without supermajority requirements. As a result, a supermajority state’s credit rating may be lowered by agencies such as Standard & Poor’s and Moody’s Investor Services. Indeed, both agencies have cited a state’s ability to raise revenue when necessary as a major criterion in assigning its ratings. In 2011 Standard & Poor’s stated that one of the points in favor of assigning a state a higher rating is whether “the state has autonomy to raise taxes and other revenues (rate and base); in addition, there is no constitutional restraint or extraordinary legislative threshold for approval” for new taxes.6 In 2010 and 2011 Moody’s specifically cited the supermajority requirement in downgrading Arizona’s issuer rating and Nevada’s general obligation bonds.7 States with a supermajority requirement may find themselves hamstrung in attempting to balance a budget during a recession. Ideally, during a recession a state should balance its budget with spending cuts and tax increases. However, options for supermajority states are limited — they are pressed to balance their budgets only with spending cuts. In doing so, these states tend to make their recessions worse by dampening economic activity because of employee layoffs, contract cancellations with vendors, reduced payments to businesses and nonprofits that serve the community, and more. These are only three of the consequences a supermajority requirement can engender; there are many more.

Reconsidering Supermajorities?

While some states, like Ohio, are considering amending their constitutions to implement a supermajority requirement, recent reports indicate some legislators — perhaps even taxpayers — in supermajority states are rethinking supermajorities. Asked why there is a pushback against supermajorities, Waxman said that “legislators are starting to realize the difficult position supermajorities put them in. It’s hard to do what’s best for the state and the people.” She added that “taxpayers have had the chance to see firsthand the damage caused by their legislature’s inability to increase taxes to pay for things they want, like teachers and healthcare. Taxpayers want roads they can drive on.” For example, Waxman said, consider then-Gov. Sam Brownback’s deep cuts in the Kansas budget and significant reductions in tax rates (Kansas is not a supermajority state): “He said [his tax policy] 'will be like a shot of adrenaline into the heart of the Kansas economy.' Except it didn't. It was a disaster.” She also pointed to the teacher walkout in Oklahoma, which ultimately forced the state to raise taxes to give the teachers higher pay.

Therefore, binding future legislatures to the supermajority requirement locks in current policies that have outlived their usefulness, such as tax breaks for select industries. And it may hamstring the legislature from enacting policies that meet the needs of the state and the taxpayers, especially if those needs have significantly changed since the supermajority requirement went into effect.

Conclusion

Legislative supermajority requirements for raising existing taxes or enacting new ones have a history spanning over 80 years. While some cheer the restraints supermajorities place on legislatures, others argue it is not worth the cost. Legislatures may be forced to raise fees and other revenue sources to pay for the services and infrastructure required for the state and taxpayers to function, often to the detriment of low-income people. Supermajorities are not favored by credit rating agencies, which usually forces supermajority states to pay higher interest rates on bonds to fund capital improvements and may result in a downgrade of a state’s creditworthiness. Legislatures in some supermajority states are taking a second look at the requirement, realizing the touted benefits in keeping taxes low are not necessarily materializing. The pushback against supermajority requirements is in its infancy, and it will be interesting to see what happens if it grows up.

FOOTNOTES

1 “A Summary of Legislative Supermajority Requirements,” Bureau Brief Report No. 05-101 (2005). In 1958 the state was prohibited from administering property taxes.

2 “Florida Amendment 5, Two-Thirds Vote of Legislature to Increase Taxes or Fees Amendment (2018)” Ballotpedia.

3 Dean Stansel, “Supermajority: A Super Idea,” Cato Institute, Apr. 15, 1998.

4 Steven Hayward, “The Tax Revolt Turns 20,” Hoover Institution, July 1, 1988.

5 Peter J. Ferrara , “Supermajority Taxpayer Protection,” Americans for Tax Reform, Mar. 17, 2000.

6 “U.S. State Ratings Methodology, Global Credit Portal Ratings Direct,” Standard & Poor’s (Jan. 3, 2011).

7 Moody’s Investor Services, Global Credit Research Press Release, “Moody’s Downgrades State of Nevada’s General Obligation Bonds to Aa2 from Aa1,” Mar. 24, 2011; and Moody’s Investor Services, Global Credit Research Press Release, “Moody’s Downgrades Arizona’s Issuer Rating to Aa3 from Aa2,” July 15, 2010.

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