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Sunday, May 10, 2009

Keep the Two-Thirds Rules On Sacramento

By Fred Foldvary

Imagine being very ill with an iatrogenic disease. "Iatrogenic" means a disease caused by the doctor. The doctors are giving you medicine that is slowly poisoning you, because they mistake it for food. Now you are getting ever sicker, and the doctors are debating about whether to increase the poison. Would you prefer that they decide with a two-thirds vote or a majority vote? I would want to make it more, not less, difficult to increase the poison, wouldn't you?

The same reasoning applies to the requirement in California for a two-thirds vote of each house of the legislature to pass budget bills and to approve tax increases. There is an attempt now to have the voters decide whether to lower the budget passage requirement to 55 percent. Whether you are in favor of the two-thirds rule depends on whether you believe that an increase in taxes and spending is economic nutrition or whether it is economic poison.

Some sources of government revenue provide nutrition to the economy, while others are poison, shrinking production, making enterprise flee, and driving transactions underground. Pollution charges are beneficial, for instance, because they reduce pollution while providing revenue. Public revenue from land value is efficient, because land does not shrink, flee, or hide. Tapping the land value is also equitable, because public works increase land value, so tapping that value pays back value received. Private communities such as homeowner associations get their funds that way, from fees and assessments based on benefits, rather than extracting money just because it is there.

The California legislature has chosen to poison the economy with punitive taxes on wages, enterprise, the sale of goods, and the value of buildings. These taxes impose what economists call an excess burden, also called a "deadweight loss." By decreasing gains and increasing costs and prices, such taxes reduce production, exchange, income, and growth. The two-thirds requirement to increase taxes or to spend the loot is therefore a wise defense against increasing the economic poison.

The two-thirds budget rule also helps to limit excessive borrowing. When politicians say that a bond measure will not raise taxes, they are deceiving us, since government spending eventually is paid for by taxes. As we have seen this year, large budget deficits create pressure to increase taxes. To spend is to tax, so if the people make it easier for government to spend, they are also making it easier for government to eventually impose more bad taxes.

If I were a member of a voluntary club, I would not want a two-thirds rule for adopting the club budget, since majority rule would be reasonable, and anyone who didn't like that could quit the club. But government is imposed on people and takes its revenues by force, so the people need protection from being inflicted with ever more poison. Taxpayers also need protection from those who seek to impose greater spending requirements on the state or on local government.

If the state constitution prohibited punitive taxation and instead embraced a libertarian position by requiring public revenues to come from voluntary user fees, pollution charges, and the land value generated by governmental public goods, then a majority vote to spend that money would be reasonable. But as long as the state chiefs insist on cannibalizing the economy with punitive taxes, we need that two-thirds rule to stop them from imposing greater ruin on the economy.

California is not alone in requiring super-majorities to enact budgets. Rhode Island also requires a two-thirds vote, and Arkansas requires a three-fourths vote for some of its spending. Several other states require super-majorities to pass budgets or increase taxes in particular circumstances, such as when spending would exceed an upper limit.

Budget battles can be avoided by adopting a constitutional rule that if a balanced budget is not adopted by the closing date, the previous year's budget is automatically extended, and if the budget is in deficit, all spending categories are cut by the same proportion to balance the budget. The fact that the state has not adopted this rule implies that the people and legislature prefer budget battles to automatic extensions and cuts.

The people voted in the two-thirds rules, which implies that the people sought to protect themselves from unwise taxing and spending. Eliminating the two-thirds rules without simultaneously stopping the economic poison would just encourage further iatrogenic economic damage. 

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