Referendum C Wrap-Up

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Referendum C Wrap-Up

by Ari Armstrong, November 2, 2005

The story is that we lost. By "we," I mean the loose coalition of fiscally conservative Republicans, blue-collar Democrats, skeptical unaffiliated voters, libertarians, and those who hold to the quaint notion that economic liberty matters and that individual rights entail rights to control one's earnings.

Referendum C passed.

But I'll begin with the important little victories, the good news.

Referendum D Defeated

Referendum D failed. (As I write, The Denver Post reports that 98.8 percent of precincts have reported, and Referendum D is down by around 15,000 votes out of over a million cast.) What does that mean?

As the Blue Book (page 7) notes, "Beginning in 2011, Referendum C is estimated to increase state spending by $995 million, plus annual increases for inflation and population growth. If Referendum D passes, the state will also be allowed to spend an additional $100 million each year beginning in 2011." The Blue Book continues (page 11): "Referendum D: permits the state to borrow up to $2.072 billion with a maximum repayment of $3.225 billion... [and] increases the revenue that Referendum C allows the state to keep by up to $100 million each year into the future, beginning in 2011."

According to Legislative Council's September report, "Actual Appropriations" -- a portion of the budget related to the general fund -- would have been nearly $6.2 billion this year, under previous rules (had Referendum C failed). By 2009-10, this category would have risen to nearly $7.1 billion. (By my count, Colorado's mass media reported that fact exactly zero times. But obviously I did not read every story related to Referendum C, nor did I watch much TV or listen to much radio.) Assuming passage of the Referenda, spending for "Actual Appropriations" is now expected to be over $7.9 billion in 2009-10.

Under pre-C rules, "Actual Appropriations" was expected to be $7.5 billion in 2010-11. "Assuming passage of Referenda C and D," that figure was expected to be $8.4 billion. So, thanks to the rejection of Referendum D, that figure will be a mere $8.3 billion.

Or, put another way, had both Referenda failed, "Actual Appropriations" would have increased by 21 percent by 2010-11. With the passage of Referendum C, the increase is expected to be nearly 35 percent. Had Referendum D also passed, the increase would have been over 36 percent. So the defeat of D is a victory for limited government, but, long term, not much of one.

But the defeat of D is is more important in the short term. Referendum D would have allowed the state to borrow over $2 billion immediately. The idea was to use some of the Referendum C money to pay back the debt over the next five years. But now that there will be no immediate, massive infusion of cash, the legislature will be pressured to spend the money from Referendum C on things voters want. It's unclear to me how the vague language of Referendum C, House Bill 05-1350 (a measure intended to supplement the rules of Referendum C), existing language in 24-77-103.6 (which is referenced in 1350), and pressures on future legislators (because all this is statutory) will interact to determine how the extra money is spent.

Silver Linings of the Referendum C Vote

Even though C was approved, 48 percent of voters cast a "no" vote. (During my debate with Romanoff, I predicted the vote would be 48-52, only I didn't know which way it would go.) With 98.8 percent of precincts reporting, around 578,000 people voted in favor of it, while over 533,000 voted against. That's a large "no" vote. That's a loud enough "no" to put the legislature on notice. It's a big enough opposition to discourage future tax grabs.

The Rocky Mountain News, along with CBS 4, conducted a poll that was reviewed on October 14. Perhaps surprisingly, 66 percent of people who responded said it's "likely" that "[g]overnment will waste much of the money." Apparently, many of the same people believe that enough of the money will be spent prudently to merit the spending hike. Nevertheless, obviously people don't want their money to be wasted, so hopefully the legislature will make a better effort to spend the money on relatively useful projects, rather than to enrich special interests.

Around 28 counties rejected Referendum C. El Paso was closer than I anticipated, with a 53 percent "no" vote. Mesa County, on the other hand (which contains Grand Junction), came out with a surprisingly strong "no" vote of 65 percent. (The grass-roots work of Alan Farina and others obviously was effective.) Not surprisingly, the large counties of Denver and Boulder approached 65 percent approval. Yet in large portions of the state, the spending hike was unpopular.

When the numbers for Denver and Boulder counties are subtracted from the totals, Referendum C fails in the rest of the state.

Of course, while Referendum C weakens the Taxpayer's Bill of Rights, it does not eliminate it. Even though state spending is now expected to be higher than it would have been every year into the future, its growth will still be limited. Hopefully the economy still will grow faster than state spending, as it should.

The Costs of Referendum C

Under the new rules of Referendum C, every voter is expected to pay more money in net taxes every year into the future. The Blue Book (page 4) indicates that the portion of the TABOR refund related to the sales-tax -- "42 percent of all TABOR refunds" -- was expected to increase to an average of over $150 over the coming years. Hopefully, the legislature will make payouts of the TABOR refunds more proportional (assuming they return in future years). Assuming proportional payouts, the average taxpayer is expected to lose somewhere over $300 per year, forever. Double that for a working couple and plug it into a 40-year, interest-bearing account, and you'll get some idea of the long-term expected cost of Referendum C for a Colorado family.

Of course, there's nothing stopping future voters from lowering or increasing tax rates or lowering or increasing spending limits.

The Long-Term Dangers of Referendum C

Under the pre-C TABOR, the growth of government spending was partly limited by the growth of the economy. The recent economic slide automatically prompted tighter spending. While total state spending went up every year under TABOR, the general fund was cut in two years. TABOR allowed government to grow by inflation and population, at most.

Now, with Referendum C, the idea of setting a maximum rate of growth has started to morph into the idea that government spending should grow by some minimum every year.

Economist Lawrence McQuillan warned: "I can give you a prediction of what's going to happen here, based on what happened in California. In 1979 California passed the Gann Limit... [that] was almost exactly what you have on the books here, where spending can only increase at the rate of inflation plus population growth... [But] there were initiatives that got on the ballot that chipped away at it... So now we have this really auto-pilot type of spending program in California, where the constitution actually mandates how much spending has to increase every year, even if the money's not there... So I would warn you that, if you go down that path, it's a very slippery slope, and it's hard to ever turn it back once you ever go down there, because there are so many vested interest groups that start seeing it as their little honey-pot that they don't want to change."

Even worse is Europe, where special interests are so deeply entrenched and wealth transfers so common that productivity is diminished and unemployment is high.

The advocates of Referendum C could count on the votes of most people who currently accept income transfers through coercive taxation: almost all teachers, most professors, most college students, most parents with school-age children, people who work in or receive state-subsidized health care, etc. Generally, the higher the rates of taxation, the larger the number of people who grow dependent -- in part or in whole -- on forced wealth transfers. Higher taxes tend to create more support for even higher taxes. The more this process progresses, the more special interests fight over the existing pie, and the slower the rate of economic growth.

No doubt, Andrew Romanoff supported Referendum C only because he didn't think he could get away with a more ambitious spending hike. In the short term, the passage of Referendum C makes it less likely that additional spending hikes will be passed. The danger is that, in the long term, Referendum C shifts incentives in a way that makes McQuillan's predictions more likely to come true.

Other Issues

I'll take a quick detour before exploring the many reasons why Referendum C passed.

While Referendum C was the major battle and D was the secondary battle, some other important issues were decided. I was pleasantly surprised to read that Denver's "Question 100" passed. Now, according to city ordinance, possession of small amounts of marijuana by adults is legal. I never thought the measure had a chance. Of course, Denver police will still enforce state law, so the matter is largely symbolic. But the vote does signify that people are increasingly tired of the arbitrary, counterproductive prohibition of marijuana.

In other good news, Wal-Mart will be able to build a new store in Westminster. While Wal-Mart erred by trying to use eminent domain in Arvada, the company should be able to buy land from willing sellers to build a store.

Unfortunately, voters approved a sales-tax hike in Lakewood and various tax measures in other areas.

The Importance of Philosophy

Most voters bought the idea that state government needs to spend more of our money via coercive taxation. Many of these voters thus rejected three broad propositions: 1) People have a right to spend that income how they see fit. 2) Many projects, including roads, college instruction, and health care, should be funded to a greater degree by the people who use those services. 3) The productivity unleased by economic liberty is the best and primary means to improve people's material well-being, and voluntary charity is a more appropriate and just way to alleviate whatever poverty remains.

These are, of course, largely philosophical matters. Many people voted for Referendum C simply because their philosophical positions favor or at least pragmatically tolerate a more collectivistic society. Thus, the fundamental battle is one of ideas.

Generally, these are the philosophical and economic views that tended to motivate opposition to Referendum C:
* Individuals generally are responsible for their own actions.
* It's good to pursue one's rational self-interests, including productive gain, within the moral and legal context of individual rights.
* Individual rights entail the right to earn income through productive effort and spend that income as the earner sees fit.
* The proper purpose of government is to protect individual rights, not forcibly redistribute wealth.
* A system of economic liberty is required for intellectual autonomy, for voluntary and just social relationships, and for a fully productive and life-enhancing economy.

On the other side, these are the views behind much of the support for Referendum C:
* Individuals generally or at least often succeed or fail because of forces outside their control.
* It is wrong or at least unseemly to pursue one's own interests, and it is better to serve others (by force when necessary).
* Individual rights are imprecise preferences that must be restrained by the collective good. While it might be economically advantageous to allow individuals to earn wealth and keep most of it, people do not have a right to use their income as they see fit.
* The proper purpose of government is to forcibly redistribute wealth to those who need it.
* Economic liberty tends toward chaos and social disconnection, and so a powerful state needs to restrain economic activity through a tight network of taxation and regulatory controls.

In some small way, we are recapitulating the old debate between Locke and Hobbes. Obviously, Referendum C takes us but one small step down the path in either direction. This time, the step is toward collectivism.

Ultimately, battles over taxes are not fought at the ballot box. Taxation is merely one small front in a much broader struggle of ideas. Without the right ideas, high rates of taxation will be a problem, of course, but they will be among the least of our worries. And so, while there's plenty of room for specialization, we neglect more fundamental ideas only at our peril and risk of eventual complete defeat. By the same token, if we help to establish the right fundamental ideas, Referendum C will be a minor loss over the long term.

Owens Sells Out

The leftist media have already laid out the palm leaves for Governor Bill Owens. Yes, this is a great victory for the governor. He weakened his own party, strengthened the Democrats, alienated anti-C unaffiliated voters as well as the free-market portion of the Republican base, squandered the opportunity to create a leaner and more effective state government, violated the economic rights of at least a large minority of Colorado taxpayers, enriched special interests, and jeopardized Colorado's long-term economic health. Yet, even if Governor Pyrrhus has cost himself national political advancement (if his personal problems hadn't already done that), no doubt he has at least secured for himself some cushy "private sector" position when and if he wants it. The politics of pull values such men.

Those who mistook Owens for a real fiscal conservative can be forgiven. In an April 10, 1997 article for The Villager, then-Treasurer Owens described "this most enduring myth: that a dollar taken from you in taxes and spent by a bureaucrat is ever so much more valuable to society than a dollar left in your pocket for you to spend." That's the sort of rhetoric that would have made Ayn Rand herself proud.

Treasurer Owens continues, "Not a single day goes by without some pundit warning us of the dire consequences of reduced government spending: the poor will suffer, the aged will suffer, those without a job will suffer... I guess we will all be in horrible shape when we are allowed to keep more of our earnings. Or so the myth would have you believe."

Treasurer Owens continues, "It is as if dollars spent (or 'invested' as tax-spenders are fond of saying) by the government are endowed with supernatural powers. Rippling through the economy like a magical wave, these bureaucratically-directed dollars not only create jobs, they promote truth, beauty and justice, and generally bring happiness to all."

Treasurer Owens points out that "history shows that the healthiest economies are those directed by consumers, not bureaucrats."

Governor Owens, by contrast, believes that his Office of Economic Development can best spend your dollars by distributing corporate welfare. It is Governor Owens, along with his own hand-picked bureaucrats, political spokespersons, and soft-socialist friends, who has frightened every conceivable interest group into voting for a massive tax hike that permanently ratchets-up state spending.

Treasurer Owens pointed out, "Strange as it may sound to some big thinkers, people do not work to pay taxes -- they work to make their lives better. And when they are not allowed to make their lives better, they vote with their feet. Ohio University Economist Richard Vedder found that from 1980 through 1989, an average of about 1,000 people per day migrated from the ten most heavily-taxes states to the 10 least-taxed states. Typically, those new migrants are not seeking low wage work. Instead, they are the most entrepreneurial members of society, men and women that really do create jobs, to the extent they are permitted. And what of job creation? Consider this from a recent Joint Economic Committee study: 'The ten states with the largest income tax increases since 1990 have lost 200,000 jobs since then...' There is simply no way that we can send more dollars to Washington (or to our State Capitol or City Hall) and expect them to boomerang back to us more valuable than before."

And yet, when Lawrence McQuillan updated Vedder's work and made the same case in Denver just last month, his arguments fell on Governor Owens's now liberty-deaf ears.

Treasurer Owens concludes, "The lesson is beautifully simple: prosperity, because it is the result of voluntary exchange, cannot be created by any entity of government... As in Robert Frost's famous poem, I believe we really are at a place 'where two roads diverge.' One of the roads permits and encourages individuals who spend more of their earnings as they see fit, thus making them, not our elected officials, chief managers of their money. And that road, I believe, is the one that will bring prosperity to Colorado and all of her citizens."

So what happened to Treasurer Owens? The next year, he was elected governor. It's easy to voice the rhetoric of economic liberty when you're running for office and it's (at that point) impossible to spend beyond the restrictions of TABOR. At that point, saying he was for TABOR and fiscal restraint was about as politically risky as saying he was for gravity.

I have never trusted Governor Owens. He can be manipulative, vindictive, and utterly cynical with respect to principles. To me, it came as no surprise that he supported Referendum C. Indeed, I would have been surprised if he hadn't supported it.

Does anyone remember that, in 2000, Owens supported all sorts of anti-gun laws, including unsafe storage laws, violations of the rights of young adults to purchase defensive tools, and registration checks at gunshows? At the time, Owens proudly stood side by side with Democrats who opposed the right of self-defense:

So is it any surprise that Owens also stood with Democrats who oppose the right of economic self-determination?

It goes without saying that, without Governor Owens, Referendum C wouldn't have stood a chance. It probably never would have made the ballot, and, if it had, it easily would have failed.

And yet Owens was propped up by some Republicans who tried to turn him into some sort of fiscally-conservative hero. When your hero has feet of clay, it's hard to act surprised when the other side topples him against you.

The Opposition

The advocates of Referendum C ran a very good campaign to overcome initial voter skepticism of their measure. According to Jim Hughes of The Denver Post, the advocates outspent the opposition by $5.5 million to $2 million. That kind of money buys a lot of ads.

The advocates also spent their money better than the opposition did. Katy Atkinson's machine was well-oiled and consistently professional (at least in terms of imaging). The pro-C camp was also well-organized at the grass-roots.

I am not among those who believe the divisions of the anti-C side hurt the opposition. The problem was not that several groups shared the anti-C message. The problem is that none of the groups honed its message into something that appealed to voters. To take just one example, the "Yes on C" signs were esthetically appealing, positive, and widely distributed. The "no" signs were ugly and sparsely distributed. There was a feeling of positive energy associated with the pro-C camp, and a feeling of hand-wringing, even bewilderment, with the opposition.

The pro-C camp did several things very well. First, it honed its message for every conceivable interest group. According to the overblown rhetoric, Referendum C would benefit the troops, the opponents of eminent domain(!), the elderly, the poor, the rich, the young, parents, college students, drivers, veterans, techies, businesses, nonprofits, etc. On the flip side, the failure of Referendum C would allegedly visit destruction on every conceivable interest group. Second, it created the sense that "everyone" supported Referendum C, even though it barely won. Third, it ran effective ads and counter-ads.

The opposition, on the other hand, ran ads that were either too cute, too strange, or uninformative. "It's your dough" just doesn't appeal to people. Where were the ads stressing that, according to Legislative Council, general-fund spending was already expected to increase by nearly a billion dollars over the five years? (I didn't track all the ads, granted.) What percent of voters knew about the already-scheduled billion-dollar increase? My guess is that less than two percent of voters knew that.

I got a phone message that used ominous music as a backdrop for an anti-C message. I thought the music was so silly and over-the-top that I don't even remember what the message was. Meanwhile, the advocates of Referendum C managed to sound reasonable even as they churned out all sorts of ridiculous, overblown, scare-mongering rhetoric.

The Referendum C camp won the imaging war, hands down. The pro-C side seemed caring, thoughtful, professional, and moderate. The anti-C side seemed like disorganized bomb-throwers. This is despite the facts. There's nothing caring or thoughtful about seizing more of people's income by force. The position that is in fact caring and thoughtful is the position that respects individual rights and defends economic liberty. But that's not what many voters saw.

Part of the opposition made a serious error by trying to conflate TABOR refunds with tax refunds. All this accomplished was to reduce the credibility of the opposition. It is true that the media bashed the opposition with trumped up charges of dishonesty and at the same time amplified the dishonest claims of the pro-C camp. But that's no excuse.

Some among the opposition also failed to find the right balance between arguing from principle and arguing about the specifics of Referendum C. I think many voters actually thought the choice was between modest increases in state spending and drastic cuts. In reality, the choice was between increased spending of nearly two billion dollars versus a "mere" billion (over the five-year span). Yet our side actively gave the media and the pro-C camp (but I repeat myself) ammunition to talk about eliminating Medicaid and totally privatizing all education. While it's counterproductive to divorce a specific issue from broader principles, it's also counterproductive to debate a specific proposal by bringing up other proposals that are unrelated. It's important to clarify what are the choices before us.

The Media

Many media stories related to Referendum C were excellent. While the Rocky Mountain News editorial page endorsed C, it also gave the opposition a fair shake. Generally, though, the media were biased in favor of Referendum C. In the worst cases, alleged "news" reporters wrote little better than unpaid advertisements for Referendum C.

Here are some of the problems I noticed:

* Headlines were regularly skewed toward the positions of the Referendum C camp.

* Reporters regularly understated the magnitude of the TABOR refunds, first, by ignoring the fact that the refunds were expected to increase substantially over the five-year period, and, second, by ignoring the likelihood that the legislature would have reformed the TABOR refunds to make them more proportional. (One story the media never told during this debate, at least as far as I saw, is how the TABOR refunds became the political playthings of special-interests in the first place. But such a story would not have advanced the media's agenda of passing Referendum C.)

* Reporters started framing and overblowing the story that Jon Caldara is supposedly a liar (and he did make incorrect statements on a couple of minor issues, as he's acknowledged), even as they gave a free pass to the pro-C camp for all the ridiculous things it came up with. For example, Bob Ewegen flat-out called Caldara a liar in the same column in which Ewegen himself fundamentally misstated the facts! The Post's editorial page also enabled the lie that the TABOR refunds involved a mere $15. Both the Post and the News reported, without providing proper context, the fabrication that, without C, the state faced a $365 million "cut."

* By my count (though I did not see every story), Colorado's mass media reported exactly zero times the fact that general-fund spending was already expected to increase by nearly a billion dollars by 2009-10, without Referendum C. Instead, mostly what we got from the media was a complete confusion of real budget cuts and "cuts" caused by projected increases in spending.

* The media often failed to report the strongest arguments for the other side. For example, while the media covered dildos, lesbian sheep, and Red Robin, which is fine, the media largely ignored the bulk of my paper on wasteful spending. Nor did the media adopt my suggestion to devote some of their resources to pursuing the matter further than I could on my own. While the media diligently pointed out every unfortunate comment made by John Andrews and others, the media failed to report many of the strongest arguments made by the opposition.

* The media uniformly attacked Caldara's suggestion that tax money goes to fund illegal immigrants -- which it does -- and that this is somehow related to Referendum C -- which it is only tangentially. Yet where was the media account beating up the advocates of C for trying to tie C to eminent domain? Again, the theme among the media was to attack the opposition and give a free ride to the advocates.

* The media regularly subjected the opposition to ad hominem attacks, ranging from the subtle to the nasty, while painting the advocates of Referendum C in the best possible light. Here are merely three examples.

Today Mike Littwin writes, "The budget problem had reached a point where everyone -- except Doug Bruce and people like Doug Bruce -- understood that something had to be done." Littwin's sentence contains several distinct ad-hominem attacks. First, it suggests that the opposition couldn't possibly have had good reasons for opposing Referendum C -- they were simply too stupid to see the obvious truth. Second, it suggests that opponents of Referendum C were cookie cut-outs, and, by implication, didn't think for themselves. In fact, while I like Douglas Bruce, I am not "like" him in many important ways. And people like Mike Rosen came up with arguments against C that were very different from the ones used by Bruce. Third, Littwin's statement suggests that dislike for Bruce should translate to dislike for all opponents of Referendum C. Fourth, Littwin suggests that Bruce is wrong simply because of who he is, so therefore no analysis of Bruce's arguments is necessary. Littwin also commits the logical fallacy of invoking popularity in support of a position. Besides the fact that "everyone" is often wrong, in this case Referendum C won by a slim margin.

And the News's editorial for the day states, "Coloradans proved they're not the reflexive anti-government automatons that TABOR's enemies have so often suggested for the past 13 years. Give Coloradans a good reason to boost a government's budget, and that's what they'll do." The implication is that the reason people voted for C is that they're not "reflexive anti-government automatons." But this precludes the possibility of voting against C for good reasons.

Jim Spencer of the Post writes that Owens "took every cheap shot the extreme wing of his own party offered..." But why are criticisms of Owens cheap shots, whereas the relentless and vicious personal attacks against critics of Referendum C are chic? Speaking of cheap shots, why is it that the majority of the Republican Party is the "extreme wing?" And what does "extreme" even mean in this context? The polls, I understand, showed that most Republicans opposed Referendum C, and at least a very large minority did. Unlike the criticisms of Owens, which have some grounding in reality, Spencer's cheap shot is a vacuous ad hominem.

Concluding Thoughts

The passage of Referendum C is a disappointment, but it is not the end of the world, nor is it the end of the fight for economic liberty in Colorado. Indeed, it is just the beginning.

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