Election Day Ballot Initiatives Could Affect State and Local Tax Policy

Citizens across the country have been gearing up for this election week for an untold number of months. And while much of the attention has been focused on the too-close-to-call presidential election and the key House and Senate races, when voters hit the polls on Nov. 2 they will also be deciding on a number of different ballot initiatives that potentially could have significant impacts on state and local tax policy.

There are at least 30 initiatives in 13 states that deal with state tax policies. Several raise new revenue and dedicate the money to specific programs. Others shift revenue from one source to another.

While state tax policy differs from federal tax policy, they are similar in that policy adjustments can significantly impact how much revenue is brought in, and how that revenue is allocated. As the growing federal deficit threatens to squeeze the amount of federal support that can be given to states, it becomes more important for states to have tax policies that will ensure responsible revenue-raising and revenue allocation practices. If states become victim to ballot measures that contain disguised reductions in funds for health, education, the nonprofit sector, and various other services, the results could be destructive for the people who rely on funding from state budgets.

The Center on Budget and Policy Priorities has provided a helpful compendium of state initiatives with fiscal implications. Many of these measures are misleading in the level of fiscal impact they will impose on states. Amendment 3 in Missouri, for example, would shift $187 million per year for four years from the state sales tax on motor vehicles out of general revenue funds and into a dedicated road bond fund that would be used to pay back state highway construction bonds. Official literature describes the initiative as having "no net fiscal impact," yet this shift in funds means less money in the general revenue fund. According to the Missouri Budget Project, this will mean less money for activities such as education, health care, nursing home oversight, mental health care and foster care. Too often voters do not understand the implications of such initiatives -- in this case, that some programs will get squeezed in this reallocation.

On the other side of the spectrum, in California voters have the opportunity to reform their tax structure to make it slightly more progressive. Proposition 63 would increase by one percent the state tax on taxable income over $1 million. The additional revenue would provide dedicated funding to expand mental health services. Such popular earmarking of revenue for specific programs has been hotly debated in the state, and raises the concerns that such efforts could reduce public officials' spending flexibility, or lead to a situation in which only politically popular programs with electoral clout are insured dedicated resources. But with continued federal and state cutbacks, this appears to be the more common approaches states are taking.

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