Will Hawaii ever have a ‘Taxpayer Bill of Rights’?

from Grassroot Institute

Colorado’s “Taxpayer Bill of Rights” could provide a model for Hawaii to better constrain government taxing and spending, according to Rhonda Sparlin, a partner in the State and Local Tax Services Group of the accounting firm Rubin Brown, based in Denver.

Sparlin was the featured guest on the March 21 episode of “Talking Tax” show on ThinkTech Hawaii, hosted by Tom Yamachika, president of the Tax Foundation of Hawaii and a Grassroot Scholar, and Mark Coleman, Grassroot Institute managing editor.

During the half-hour conversation, Sparlin explained how TABOR, a constitutional amendment approved by Colorado voters in 1992, limits the growth of government by limiting tax increases.

Currently, the Centennial State has a flat 4.4% income tax rate — one of the lowest in the nation — and 2.9% state sales tax rate.

Sparlin said the state’s Taxpayer Bill of Rights was meant to “put some guardrails [on] the growth of government, … and that meant if there were laws that [legislators] wanted to pass that would have a direct or indirect increase in the tax burden, they needed to be voted on by the electorate before they could pass.”

In addition, she said, TABOR  requires the state to refund excess revenues to taxpayers. 

“Every resident individual who’s filing an income tax return gets a specified dollar amount,” Sparlin noted. “This year is $800. And that’s for everyone.”

In contrast, Coleman and Yamachika noted, Hawaii’s Legislature can more easily override state constitutional spending limits and keep excess revenues. 

Sparlin said TABOR has “lost some of its strength” over the decades, 

She added, Colorado has “almost 70 home-rule cities” that can set their own tax rates, so for businesses, “the complexity level … to operate in Colorado is tremendous compared to other states.”

Yamachika suggested that Hawaii taxpayers would likely support TABOR-style constitutional limits on taxing and spending, but “I don’t think that any existing legislator would want to put that before the people.”

Coleman added, “We just have to find somebody, don’t we?”

TRANSCRIPT

3-21-24 Rhonda Sparlin with hosts Tom Yamachika and Mark Colema on “Talking Tax”

Coleman: Good morning, everybody. I’m Mark Coleman, your co-host today again for “Talking Tax,” right here on ThinkTech Hawaii, your favorite community affairs programming. And “Talking Tax” is all about taxes, as you might have guessed. And the co-host with me is Tom Yamachika. He’s president of the Tax Foundation of Hawaii.

I’m with the Grassroot Institute of Hawaii. We have similar goals in some ways, but Tom is usually really just focused only on taxes. And that, of course, is what we’re talking about today.

We also have a very special guest, Rhonda Sparlin from Denver, Colorado. She’s a partner in the State and Local Tax Services Group of Rubin Brown, which is based in Denver. She’s joining us today from Denver, and she’s going to talk with us today about Colorado’s tax situation.

They have a really interesting program there called the Taxpayer Bill of Rights, which helps limit government spending by putting a cap on tax increases. 

Tom Yamachika wrote about this in his weekly column a couple of weeks ago, talking about, based on the governor’s — Jared Polis, Colorado’s governor’s — State of the State address in which he actually called for tax cuts.

And Jared is a Democrat, so we’re kind of hoping that would rub off on our Democratic governor, who in fact has proposed some pretty significant tax cuts for this year. It arose last year, and we hope that that will go through.

But anyway, let’s start talking about this column and how it all relates to Colorado. Tom, you want to set up the stage there?

Yamachika: Well, sure. What we’re talking about today is Colorado. I don’t know if you could call it a blue state like ours. It definitely is not as blue as we are, but it has a Democratic governor, and one of the things that caught my attention about Colorado this year is the State of the state address that Gov. Polis gave, and you know we’ll talk about that in a moment. 

But I also wanted to give some other details about our special guest today. Rhonda Sparlin is with Rubin Brown. Rubin Brown I think is headquartered in St. Louis, but it’s all over the United States. And Rhonda is the partner in charge of state tax, firm wide.

Sparlin: Correct.

Yamachika: So she is a celebrity within Rubin Brown and for us too. And then,she’s the greatest Colorado tax practitioner to ever walk the face of the earth,  in my humble opinion,

So what we want to talk about today is this passage from Gov. Polis’ State of the State Address. He said: 

“As demonstrated by our healthy TABOR [Taxpayer Bill of Rights] surplus in Colorado, taxes are simply too high. Income taxes, property taxes, and the state sales tax. We ignore that signal at our own peril and I challenge Democrats and Republicans to work together to improve our economic growth and success by not taking taxes we can’t keep from people and instead working on a bold, balanced, progressive package including cutting the income tax rate,” which, by the way, is at like 4%.

Sparlin: It’s 4.4%. Yes. So it’s not very high to begin with.

Coleman: It’s like one of the lowest. 

Sparlin: Right.

Yamachika: It’s not very high. I mean, here in Hawaii we’re talking about a top rate at about 11%.

Coleman: Yeah, and that’s just the income tax rate. I mean, I was comparing the tax burden, you might say, the whole tax burden of Colorado against other states, and not just the income tax. And depending on which, whether it’s WalletHub or Tax Foundation, they come in very low, like fifth for WalletHub at 8.59% of all. That’s the total tax burden, 8.5%. And Tax Foundation, it’s 9.7%, it would rank number six in terms of the states there. 

Whereas Hawaii, Tax Foundation we’re almost 15%, 14.99%. And according to WalletHub we’re 12.29%. That puts us up at 48 for the Tax Foundation, number 48 highest tax burden, followed by Connecticut and New York, and in WalletHub it’s upper 40.

Yamachika: If you think that’s something, WalletHub put out a list recently about which states take the top tax burden of low-income taxpayers, high-income taxpayers, and those in the middle. And one state, and only one state, was in the bottom five of all three lists. 

Coleman: Wow.

Yamachika: And guess what? Colorado was way up there.

Coleman: Hawaii.

Yamachika: Colorado was way up there. So Rhonda, tell us a little bit about the background of, you know, TABOR and what’s been going on in Colorado.

Coleman: Yeah, please.

Sparlin: So let’s do talk about that, because I think while each of you are pointing this out and pointing out this analysis, I honestly don’t know that it’s truly reflective of what’s happening in the state. I think Tom and you and I both know the devil is typically in the details, right?

And so, you know, I think that there’s a lot that’s happening. Yes, we have a flat 4.4% income tax rate that has dropped to that level over, through a number of voter initiatives, as well as legislative initiatives, or passage of laws by the Legislature, over the years, quite honestly, over a couple of decades.

But at the same time, we have a state — and again, we have a pretty reasonable state sales tax rates. We have a very low state sales tax rate of 2.9%. And then if you’re in the Denver metropolitan area, you’ve got special districts that are an additional 1.1%. 

So a total of 4% in the metropolitan district that’s pretty much collected by the state. 

But then we have almost 70 home-rule cities who, it’s like having 70 states in the state of Colorado from a sales tax perspective. And those rates are anywhere from 3% to 5.5%. And so while the rates may be in line with what you see in other states, the complexity level for businesses to operate in Colorado is tremendous compared to other states.

And very quickly, also I just came back from a Colorado Chamber board meeting. You should have seen or would possibly heard, you know, there was a special session of the legislature called by the governor at the end of November, beginning of December last year, and it had an interim council on property tax reform and they just gave their recommendations, I believe last Friday, because our property tax rates are increasing tremendously, as well as the valuations.

And so, just the number I can remember that was thrown out that’s just expected this year is almost another $3.8 billion of property tax revenues, just because of the foundational structure of how property taxes, and in the various special districts, and all the mill levies that get piled on top of those valuation increases.

Coleman: Well, if I may, just to be clear, are you trying to say that because the various metropolitan areas, they can levy their own sales taxes? Is that what you’re saying?

Sparlin: Yes.
Coleman: And the counties collect the property taxes there, right?

Sparlin: Yes.

Coleman: Right. But OK, so that analysis though that I was mentioning was local and state and local tax burden. But what you’re saying is even though it’s really wonderful, there’s always that push to keep raising taxes, right?

Sparlin: That’s right. Or that the complexity — because it’s like dealing with, you know, could have a state exemption for affordable housing; you could have a state exemption for projects that are structured a certain way and that meet the affordable housing need in our state; but the local, if it’s in a jurisdiction where it’s a local home-rule city, they may not honor that exemption.

And so, you know, you could have about 5% of the cost of that affordable housing project basically go back to the government through sales taxes on the cost of the materials and the materials construction and that type of thing. 

And so it increases, it’s artificially increasing the cost of what … they’re trying to get affordable housing, but then there’s a certain percentage of that that’s going back to the government through the sales taxes or other taxes.

Yamachika: But I guess the overarching principle, though, is that you have TABOR.

Sparlin: We have TABOR, yes.

Yamachika: Which is a constitutional provision.’’

Sparlin: It is … 

Yamachika: In the Colorado Constitution.

Sparlin.  It is, and, you know, you’re gonna get historical on me now, or maybe I’m going to get historical on you. It goes back to 1992. And again, we have local control through these sales taxes and other taxes. And there were a number of things that TABOR was meant to do.

It was, first off, to try to limit the growth of government, to try to put some guardrails about the growth of government in the state of Colorado. And that meant if there were laws that they wanted to pass through, that would have a direct or indirect increase in the tax burden, they needed to be voted on by the electorate before they could pass.

I would tell you that that’s one of the provisions. There were other provisions, but that’s probably one of the main provisions that everyone’s aware of. And I will tell you that that’s lost some of its — it’s not as strong as it used to be.

There have been some court cases over the decades that have said, look, for instance, in the legislature, if you want to have a bill that increases tax, maybe increases the sales tax, broadens the sales tax base, but then in that same bill you give, you increase the earned-income tax credit or the childcare credit in the state of Colorado. Those can offset.

You know, we’ll have our legislative analysis group do the analysis, but those could potentially offset, and those don’t have to be voted on. 

So you can have these tax increases in particular sectors — corporate, corporate or business taxes versus individual taxes — as long as they’re in the same bill and they have a neutral impact, then maybe you don’t require a vote of the people.

Yamachika: Well, but I think the remarkable thing is that you have guardrails in the first place. A lot of states don’t. We don’t. 

And I know because I participated in this as you know with the NFIB [National Federation of Independent Business] amicus brief, there was litigation over the question of whether TABOR is constitutional at all. Because a group of legislators were saying, “Well look, the U.S. Constitution guarantees for a Republican form of government and that means we the legislature gets to tax people however we want and with no limits.” 

And the Supreme Court basically said, no. [laughter] The people have the power.

Sparlin: Right.

Coleman: But this voting part, if the legislature passes a tax increase or would like to pass a tax increase, it’s supposed to go to the voter. But what is that? Is that — do they have to wait till the following November? I mean, I’m not sure what the time frame is.

Sparlin: Yeah. Yeah. So it becomes an initiative and we have a — so I know there are referendums and there are initiatives. And I will just say, I kind of view it as — and I will probably get this wrong because I am like both of you where you’re used to doing these podcasts and you’re journalists and you got all the terms correct. 

I’m a tax practitioner. So I kind of understand that there can be ballot issues that either come from citizen groups or groups that get signatures of citizens or they can come from the legislature and be on the ballot. 

And so, we have, typically, honestly, I cannot remember an election, a November election, for years now, where there isn’t something on our ballots in Colorado that deals with some aspect of taxes.

And in fact, at this meeting I was just at earlier today, I mean there’s probably four, there’s anywhere from four to six different property tax proposals that they’re working through with the title board, the different groups are negotiating to which one will show up on the ballot.

Coleman: So does that apply to even county property tax increases? Or city or whoever — who is it, the counties over there that raise property taxes?

Sparlin: Yeah, so they — well, yes, there will. There’s all kinds of districts — water districts, fire districts, collective school districts, the counties, that type of thing. So it applies, however, there’s also — so this TABOR was the brainchild of a former legislator named Doug Bruce.

And, so it was also determined, in the decades since it passed, that local jurisdictions could have elections where, again, the folks who live in that locality could choose to “de-Bruce” — as it’s been called now — because what it basically was, it was elections that would allow the localities to keep this excess revenue. And to get back to what Tom read at the beginning of this podcast.

What happens at the state level is we typically get an income tax refund. There’s a refund for everyone who files a personal income tax, a refund of a certain dollar amount depending on how big that TABOR excess revenue is. And so at the local level, they can just vote to keep that. They can go through a vote and keep that.

And so, yes it does apply. However, most of the counties, to my understanding, have held those types of elections and their electorate have said, “If we pay you too much, if it’s grown too greatly, you can keep that excess revenue and put it to good work.”

Coleman: I see. So is that what — is that what the — I was going to ask you, what is, what did the governor mean when he was talking about our healthy TABOR surplus?

Sparlin: Right. Right. Is that — so this gets — there’s a standard, there’s a certain limitation in TABOR about what the growth of state revenues can be, general fund revenues can be. 

And if every time, if the economy is growing well, you know, again, with sales tax collections have grown significantly, all of that general refund revenue, or in the population has grown, all of those things, if we grow above a certain limitation, then those are excess revenues. And there are certain refund mechanisms that apply when you hit certain levels.

But at a certain point, if it’s above all of those, then again, on the individual income tax returns, every individual, every resident individual who’s filing an income tax return gets a specified dollar amount. 

And I’ll tell you again, in some years, in some years it’s been phased according to what your level of income was, and maybe at the highest levels, maybe it was $50 or $70 or something like that. This year is $800. 

Coleman: Mmm, nice.

Sparlin: And that’s for everyone.

Coleman: And what are the tools that support this activity? I mean, what if they don’t … are there any penalties? Is there a way that they can violate this, TABOR?

Yamachika: They’ve been trying for years. [laughs]

Sparlin: [laughs] I mean, you know what it is, really, Mark, it just shows that it can easily, there can easily be a mismatch of the revenues and the tax revenues that are paid to the state or the localities. There can be a mismatch of that versus who bears the cost of the services. 

So for instance, well, while the state gets all of the income tax revenues and gets a small portion of the sales tax revenues and that type of thing, the localities in the counties, as you’ve mentioned a couple of times, they’re the ones who are collecting the property taxes and they’re the ones who are trying to provide all the local services. 

So while the state may be flush with money, depending on a particular locality’s demographic, they could have extreme needs and the monies aren’t being, you know, they’re not getting the surplus of funds.

Yamachika: Yeah, I mean you compare that with what happens here in Hawaii, it’s very, very different. I mean, we have a so-called general fund expenditure ceiling, but that can be overwritten by, I believe, a majority vote of the Legislature, and it happens every year.

Coleman: Two-thirds.

Yamachika: Two-thirds, yeah, that happens every year. 

And we have a provision calling for excess monies to be refunded to the taxpayers, but they’ve amended that constitutional provision over the years, so it can, you know, it can go to other other things like post-employment benefits, the rainy day fund. So, and even when there were none of these other alternatives, the Legislature complied with the constitutional mandate by giving taxpayers a refund of $1.

Coleman: Yeah, it was pretty slimy.

Yamachika: Yeah, I mean, that’s, I think, what, you know, one difference between Colorado and us is that we’ve got more slimier legislators. [laughs]

Coleman: And the thing is, too, is there is no penalty really for exceeding the budget. Like Tom said, if they — there is a cap in the Constitution, but if they can all vote, in fact, the bills even go through sometimes now with a statement: “This bill will push us into the — you know, excess exceed the limit, the budget limit.” And they all just go along with that, you know, one of the virtues of a one-party state, I guess, pretty much.

Sparlin: Right. Well, and please understand, I mean, when TABOR went into effect, it was a much more balanced government in Colorado. We’re also a blue state where the governor is Democratic, both houses of our legislature are Democratic. In fact, I think the last election, every key office on the ballot at the state level was voted Democratic. 

So this has been happening, and we’ve been in that type of atmosphere or environment now for eight to 12 years.

Coleman: Well, apparently, the governor there is somewhat of a libertarian. It sounds like he’s maybe more akamai about economics, the principles of economics. 

But Tom did make the point in his column and that Democrats cutting taxes is not unheard of. And like I said, our own governor is proposing, I think it’s about a $200 million tax cut. He wants to raise the standard deduction and the personal, something else. And then he wants to index everything to inflation. Do they do that by the way in Colorado — index the tax rates to inflation?

Sparlin: Not the tax rates, but many of the other — like the legislature has become very keen or very smart about that in the last few years so that when they are putting some new provision into the tax law, they’re making, and it sets a threshold, they are making sure to put in the language as well that this will be subject to revision according to inflation based upon certain indicators. 

So it can grow, which is really important because I think again, what we see as tax practitioners is, even $100,000 that went into effect for a sales tax threshold in the last five or six years — I mean, that $100,000 doesn’t have the same meaning today as what it had five or six years ago.

Coleman: Well, according to your governor in the speech that Tom cited, he said that President Kennedy didn’t just launch the moonshot, he delivered one of the largest income tax cuts in history. And you also talked, Tom, about President Obama’s calls for cutting income tax. Did he ever do that? Did Obama ever do that? Or was he just calling for it?

Sparlin: Boy, that would be difficult for me. That I’m a little bit stuck on what the memory exactly — yeah, I’d hate to say, I’d hate to speculate.

Coleman: And then they always talk about the Reagan tax cuts, but then I get different signals on that, that maybe overall the spending did go up and whatever. I’m not really sure about that part of history either. But in Hawaii, Tom, is that, do you think Gov. Green is on the right track or he could do more, right?

Yamachika: Well, I mean, he can only do what the Legislature lets him, you know? I mean, it’s got to be a cooperative environment for anything to go through.

Coleman: That’s true.

Yamachika: So, last year he proposed, it didn’t go through. This year he’s proposing it again. We’ll see what happens. The jury’s still out.

Coleman: Right. Well, what about the possibility of ever getting a TABOR for Hawaii?

Yamachika: That I think would be very interesting. If we could get something in our Constitution that didn’t have loopholes and ways around it and backdoor strategies that we’ve always been using up to this point.

Coleman: Do you think people in Hawaii would support that? Being a thing that would have to go to the voters?

Yamachika: Of course it would have to go to the voters. And yeah, I think they would support it. But I don’t think that any existing legislator would want to put that before the people.

Coleman: No, we just have to find somebody, don’t we? And so Rhonda, thank you so much for being with us today. It was really nice. I know you and Tom used to work together with PricewaterhouseCooper, an accounting firm. And you were never here in Hawaii, of course, but you’re always welcome to come visit. Have you ever been to Hawaii?

Sparlin: Oh, multiple times. It’s one of my favorite places on Earth. I love the Big Island. That is just, I would love to be there. Give me about four weeks. I would love to be there. I don’t have that plan, but I just — every island. I’ve been on a number of your islands and I just, again, one of the greatest places on Earth.

Yamachika: Yeah, the tax season has to end first.

Sparlin: That’s right.

Coleman: Well, thank you again, Rhonda, for being here today. And Tom, good to see you again. And we’ll see you everybody next week or two weeks from now. I hope or whenever this next episode comes out. Thank you very much for joining us today on “Talking Tax” on ThinkTech Hawaii. If you like this program hit the like button below and feel free to go to our website and watch all the rest of our shows. Aloha!