Too much to hope for: Tax reform that is simple, fair

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“Don’t tax me, don’t tax thee. Tax that fellow behind the tree!”

Thus spoke Louisiana Sen. Russell Long decades ago, neatly summarizing the dilemma that legislators face when trying to increase revenue.

The lowliest elected official soon learns to his or her dismay that voters want services, but have little interest in paying for them.

An insoluble dilemma, you say? Not at all!

As Vice President Dick Cheney so memorably remarked, “Reagan taught us that deficits don’t matter.” Rather than raise taxes, the federal government lowered them, and borrowed to make up the difference.

States followed suit. For years, lawmakers in dozens of states, notably New York and California, stitched together flimsy, debt-ridden budgets riddled with contingent liabilities and one-time revenue sources and based on a single assumption: the party would never end. Incomes would rise, property values would rise, tax collections would increase, and there would always be more revenue streams to tap.

Resource-rich states, such as Wyoming and Alaska, managed to avoid taxing their own residents. Instead, by collecting royalties or severance taxes on oil, gas, coal and minerals they effectively taxed the residents of less-fortunate states. Such taxation may blatantly conflict with the interstate commerce clause of the Constitution, but that’s OK, because who bothers with that musty old document, anyway?

Such good fortune was the exception. Unlike the feds, states and municipalities cannot create money, and must balance their budgets. The Great Recession arrived, and the party was over.

And once the states could no longer find any of those convenient fellows behind the tree, that meant higher taxes, higher fees or service cuts.

Thanks to TABOR’s double-edged sword, Colorado has avoided profligate spending and taxation. Yet TABOR, in combination with other voter-approved constitutional amendments, has crippled the state’s ability to fund basic services. Ironically, our state government which was lean and mean when others were fat and happy, is now starved and anemic.

How broke are we?

So broke that we don’t have $13 million to repair the rusted-out dome of the state Capitol building. Instead, the legislature will either raid the Historic Preservation fund, or go hat-in-hand to private donors. So broke that the legislature is slashing every service, basic or not. So broke that legislators are whooping through a far-reaching education bill (SB 191) solely because its passage might qualify Colorado for funding from the federal “Race to the Top” program.

We don’t need to join the Race to the Top. How about the slow march to the middle?

Maybe we should try fixing our own house, by radically reshaping the way we collect and allocate tax revenue.

In a rational world, our elected leaders would re-read Adam Smith’s tome (“The Wealth of Nations,” for all you legislators who somehow skipped economics) and reflect upon his four famous maxims regarding taxation.

Taxes, wrote Smith, should fall equally on each taxpayer, be certain and not arbitrary, be convenient in terms of payment, and be economical to collect.

Would a majority of Colorado residents agree to re-fashion our state and local systems of taxation to better accord with Smith’s maxims? Would the legislature dare to refer even a modest package of reforms?

Comprehensive tax reform would raise some of our taxes, eliminate or lower others, and erase tax breaks. Such reform would strike off special interest revenue streams, and throw out TABOR, Gallagher, and Amendment 23. We’d have a clean, simple constitution, which would permit legislators to raise or lower taxes, and to allocate revenues as they see fit. We’d give the package a catchy new name: representative government.

We could design a system to be one that Smith would applaud. It would be eminently fair, transparent, and simple. We would be a model for the nation and for the world … and we’d hate it.

We’d lose the tax exemptions, government programs, tax breaks and special treatments that have shaped our lives. No more deductions for mortgage interest? Service industries taxed like any others? No more property tax exemptions for churches and nonprofits? Taxes on food and medicine? No more GOCO, no more TOPS, no more state historic preservation fund?

Homeowners, open-space advocates, doctors, lawyers, preachers, and historic preservationists would rise as one to oppose reform, as would the rest of the state’s residents.

Consider Kansas, where the state constitution banned the sale of liquor until 1948. It used to be said of Kansans, many of whom paid little attention to the law, that “they voted dry and drank wet.”

We in Colorado hate taxes, but we love our tax breaks. We’re perfectly OK with a tax system that is the culmination of a century of social engineering, as long as we get some of the benefits. So we’ll just keep muddling along and meanwhile, don’t stand under the Capitol dome.

Rust never sleeps.

John Hazlehurst can be reached at john.hazlehurst@csbj.com or 719-227-5861.