Good Government Colorado's State and Local Government Reforms

Alcohol Regulation

* It is absurd to regulate beer, wine, and liquor differently.

Construction Regulation

* The construction trades should be regulated at the state level rather than at the local level as they are now. This may have made sense when construction markets were local. Colorado currently has 273 active municipalities (comprising 198 towns, 73 cities, two consolidated city and county governments), and 62 unconsolidated counties, for a total of 335 different bodies licensing the construction trades. Most of these professionals should not exclude people with felony records unrelated to the construction trades.

* Each of these jurisdictions also has its own building code, based upon privately promulgated building codes that aren't even available for free which is unconscionable for binding laws. There should be a single state building code, that is a matter of public record. If localities want to deviate from it, they should have to seek permission from a state body to do so, and the local modifications ought to be a matter of public record on a state website. Aesthetic building code requirements should be tightly limited.

TABOR Elections And Taxes

* Elections over retaining growth in revenue not derived from new taxes should be abolished.

* Excess TABOR revenue should, by default, placed in a rainy day fund, rather than refunded. A supermajority would be required to touch a rainy day fund in excess of declines in revenue from the previous peak revenue year.

* The state 2.9% sales tax would be repealed and replaced with a revenue neutral income tax increase. Only local sales taxes would remain. But, all local sales taxes would be collected by the state and would be required to use the uniform state definition of taxable sales.

* School districts should be funded by state taxes and not by property taxes. As a result, there would no longer be elections for local property tax levies and bond issues for school districts.

* Higher educational institutions would have tax funding solely by state taxes, not local taxes.

Election Administration

* Elections should be administered by non-partisan civil servants, under the supervision of a partisan balanced board or boards. This task should be severed from the partisan elected offices of state secretary of state and county clerk, and from the non-partisan elected office of city clerk.

Elected Offices

* City clerks should not be elected.

* Statutory cities and towns have a city manager with the mayor elected by the city or town council as its chair, and do not have a have separately elected mayor or auditor.  Charter cities can do what they want.

* County coroners should not be elected and the institution should be replaced with a state medical examiner's office.

* County surveyors should not be elected.

* County treasurers should not be elected.

* County assessors should not be elected.

* County clerks should not be elected.

* County sheriff should be a non-partisan office. It is desirable not to give the local administration of criminal justice system a partisan tinge. This is less alienating between elections to the losing party members. Counties are often often politically homogeneous areas where intra-party competition is really more important the partisan competition anyway. This gives minority party members in a county more say in the outcome.

* County commissioner should be a non-partisan office. It handles local government issues like municipalities do. Counties are often politically homogeneous areas where intra-party competition is really more important the partisan competition anyway. This gives minority party members in a county more say in the outcome. In large counties there would be five seats elected from single member districts, all at once, for four year terms. In small counties, county commissioners would serve for six year terms with one elected every two years.

* District attorney should be a non-partisan office. It is desirable not to give the local administration of criminal justice system a partisan tinge. This is less alienating between elections to the losing party members.

* The state treasurer should not be elected.

* The state secretary of state should not be elected.

* The state attorney-general should not be elected.

* Uncontested elected offices should not appear on the ballot unless there is a declared write-in candidate before ballots are printed.

* School boards should be elected by the parents, except possibly by the students instead, in the case of high school students.

* The state school board should be appointed.

* The University of Colorado Board of Regent should not be elected by the general public. It would be better for these positions to be elected by alumni. The state still controls the purse strings, but this would strengthen academic freedom and ease the burden on the voters.

* Any other currently elected higher education district boards should be elected by alumni or appointed.

State And Local Judges And Courts

* Judges should be required to be lawyers with at least five years of experience. The four non-lawyer rural county court judges currently in office in Colorado should be grandfathered for their current terms, but not retained.

* The county courts should be consolidated to have a single limited jurisdiction division of the district court in each judicial district called the county court division of the district court, with a court house in each county and should be staffed with full time judges only.

* Judicial retention for judges not on the state supreme court should be decided by a vote of the judges at the next higher level, not the voters. So, county court division judicial retention should be decided by district court judges, district court judicial retention should be decided by court of appeals judges, and court of appeals judicial retention should be decided by state supreme court justices. These are the people best qualified to evaluate the performance of lower court judges.

* State supreme court justices should be limited to a single fourteen-year term of office, with one new justice appointed in the current process every two years in the absence of vacancies. 

* Vacancies in the state supreme court should be filled for the remainder of the term of the vacating justice (without prejudice to a further appointed term) by a court of appeals judge elected from the sitting judges of the court of appeals.

* The judicial discipline process should be more transparent.

* Court facilities and budgets, district attorneys offices, and public defender's offices should be financed at the state level, not the county level, to keep the judicial branch and district attorney's office independent from municipal and county government.

* Municipal courts should be abolished, with the ordinance violations previously in their jurisdiction prosecuted by city attorneys in the county court division of the district court before state appointed judges.

* County court appeals should be to a single judge of the court of appeals, not to a single district court judge otherwise on the same basis as under current law. There would be no municipal court appeals because there would no longer be any municipal courts.

* Colorado Appellate Rule 21 petitions (i.e. discretionary requests for extraordinary relief granted only when no other adequate remedy, including relief available by appeal or under C.R.C.P. 106, including petitions in the nature of mandamus, certiorari, habeas corpus, quo warranto, injunction, prohibition and other forms of writs cognizable under the common law) should be made to a designated panel of seven judges of the court of appeals (rotated annually) rather than to the state supreme court.

* The number of judges on the court of appeals should be doubled to allow it to process appeals more swiftly.

* Review of attorney regulation disciplinary hearings should be made to the court of appeals rather than to the state supreme court.

Remaining Elections

Candidate Elections

* There would be one election every November on election day, and a primary election (in parties and districts with contested races) in every even numbered year for state and federal offices. A partisan caucus would precede each primary election every even numbered year. Ballot issues would be restricted to November elections except for local recall elections and emergency local tax and bond measures.

* There would be one non-partisan local election in November in each odd numbered year. 

* In the year following the Governor's election there would be statutory municipal elections (with all municipal offices elected at once), and district attorney elections (and county commissioner elections in small counties) for a total of one or two offices plus city council races for each voter in statutory cities and towns. 

* In the odd numbered year two years after that there would be elections for county commissioner, sheriff and special district elections in the other (usually two or three races per voter). 

* Charter cities do what they want, but limited to odd numbered year elections except for recalls and for emergency ballot issues for referred tax matters or legally required referred charter amendments held when needed.

* There would be partisan caucuses and primaries (with unaffiliated voters allowed to participate in a primary of their choice, but not caucuses) in each even numbered year followed by a partisan general elections in November for state house, state senate, U.S. House, U.S. Senate, the Governor-Lieutenant Governor, and the President. The Governor-Lieutenant Governor election would be two years after the Presidential election. No election would have less than three or more than five offices to vote upon at a time, unless there was a U.S. Senate vacancy to be filled at the time, in which case there would be four to six offices. 

* Write-in candidates would not be allowed in primary elections and uncontested primary elections would not appear on the ballot. 

* All elected offices except the U.S. House and state house with two year terms, and the U.S. Senate with six year terms, would be for four year terms.

* All single member elected office races would require a majority to be elected, with a runoff of the top two candidates otherwise.

* City councils would fill municipal office vacancies. County commissions would fill county commissioner and sheriff vacancies. Special district boards would fill vacancies on their boards. State legislature vacancies would be filled by partisan vacancy committees. Governor vacancies would be filled by the Lieutenant Governor. Lieutenant Governor vacancies would be filled by the Governor (unilaterally). The law would provide for Governor's succession in other cases. The Governor would fill U.S. Senate vacancies until the next even numbered general election at which time a vacancy election for any remaining part of the vacant seat's term would be held.  U.S. House vacancies would be filled in special elections as under current law.

* Recall elections of particular local elected officials (city elected officials, county commissioners, sheriff, special district, district attorney), held promptly in the time frames allowed by law.  Vacancies created by recall elections would be filled like any other vacancy. Do not allow the recall of state legislators or the Governor, although the state legislature could impeach the Governor in a mirror of the federal process.

Ballot Issues

* Referred municipal or special district tax increase or bond issue ballot issues (during municipal or special district elections as the case may be, unless an emergency is declared by a supermajority of the city council or board, two-thirds unless there are just three members in which case it must be unanimous).

* Referred county tax increase or bond issue ballot issues (during county elections only, unless an emergency is declared by a supermajority of the county commission - unanimous if there are three members, four out of five if there are five members).

* Referred local charter amendment ballot issues (during municipal or special district elections). Legally required charter amendments would be adopted by the city council or special district board by majority vote.

* Local charter or legislation citizen initiatives (during municipal elections only for municipal measures, and during county elections only for county measures).

* State ballot tax increase ballot issues (referred only, during even numbered year elections in November only).

* State ballot issues on the state constitution or state legislation referred by the state legislature (during even numbered year elections in November only).

* Citizen initiated state constitution and legislative ballot issues (not impacting taxes, during even numbered year elections in November only).

* Newly passed state legislation would not be subject to referendums.

Colorado Income Tax Falls From 4.63% to 4.5% In 2020

Democrats passed legislation in 2019 reducing the Colorado state income tax temporarily to 4.5% from its current 4.63% flat rate, for the year 2020.

Meta: This is post 365 between this blog and its sister blog for 2019, a posting rate of 1 blog post per day.

The Gallagher Amendment Does More Harm Than Good

One of the hidden but important contributors to high housing prices in Colorado (which disproportionately hurts the less affluent, even though superficially the tax break for residential real estate would seem to reduce housing costs) is the Gallagher Amendment. This state constitutional provision in Colorado intentionally undervalues residential real estate for property tax purposes and overvalues non-farm business property for property tax purposes.

As a result, residential development increases demand for local government services more than it increases tax revenues, while business property increases tax revenues more than it increases demand for services. Retail businesses which not only pay high property taxes but also pay sales taxes over perform in generating tax revenue relative to local government service costs even more.

This creates strong incentives for local governments (which are the primary regulators of land use) to use land use regulation powers, like zoning laws, to lure new retail development away from existing developments in predatory rent seeking behavior (leaving losers with dead malls and storefronts), encourages local governments to allow other kinds of development of businesses in their territory, and discourages local governments from authorizing zoning for residential development, especially affordable housing which generates the least tax revenue while imposing the highest costs for local government services.

Therefore, local governments statewide all have strong economic incentives to allow less affordable housing to be built than they would in a world without the Gallagher Amendment. This limits the supply of housing generally, and affordable housing, in particular, which drives up the cost of housing in Colorado.

Greenwood Village's Motel Ordinance Considered

Greenwood Village's Proposed Motel Ordinance

The City of Greenwood Village's city council is on the verge a passing an ordinance that prohibits motels, other than extended stay motels that have kitchenettes and the like, to allow guests to stay more than twenty-nine days.  Motels would be fined about $450 a day for each day that a guest was allowed to stay beyond twenty-nine days.

The only poor or working class people who live in Greenwood Village live in one of the four ordinary motels (the most affordable of which is a Motel 6).  A significant share of the guests in these four motels, particularly the Motel 6, are families staying for more than 29 days at a time who are on the brink of homelessness.

In justifying the need for the ordinance, Greenwood Village officials have noted that ordinary motel rooms are not held to design standards that provide adequate amenities for families staying in them on a long term basis.  For example, they have no cooking or kitchenette facilities, and families staying in them on a long term basis are strongly tempted to use hot plates and other cooking appliances that could pose safety hazards and generate hygiene risks that the lenient building code requirements for motels are not designed to address because it is contemplated that motel rooms are occupied only on a short term basis by travelers or short term visitors who eat elsewhere and don't spend much time in the room.  Motel rooms also have less privacy and less square footage per person than would be permitted by building codes for apartment uses.

These concerns, on their face, are just the kind of legitimate considerations that should go into building codes and zoning regulations.  But, the discussion tends to indicate that the need of police calls at these four motels is a bigger motivating factor for the Greenwood Village City Council.

Greenwood Village officials also note that there are many more police calls to the four ordinary motels that have long term guests than there are at the city's few apartment complexes, or at the city's extended stay motels (whose guests are more affluent and whose facilities are designed to accommodate long term stays).  They officially attribute this excess volume of calls to the inadequacies of the physical facilities at these motels, but the guests are not complaining about that and the nature of the calls appears to be much more strongly caused by the general factor that the individuals who live here are poor and circumstances that make police intervention necessary often crop up in communities with poor people in them.  Nothing about the calls disclosed in media reports suggests that they are a direct consequence of the inadequacy of the facilities for long term occupancy by families.

It is absolutely true that lower income people living in close inadequate quarters because they are on the brink of economic crisis are more likely to generate police calls and to be a source of "blue collar" criminal activity (e.g. domestic violence and petty larceny and disturbing the peace calls).  Part of this is due to economic stress and necessity creating more intense motives to ignore laws for their own economic gain, and part of this arises from the personal traits of the poor that cause them to be at the bottom of the economic heap like below average literacy and social skills.  But, for reasons discussed at greater length below, a municipal intent to exclude low income people, particular because income and race strongly intersect, can be far more legally problematic and seem to be at the crux of what is generating political heat for the Greenwood Village city council to act on this ordinance.

The bottom line in this case is that the only poor or working class people who live in Greenwood Village live in one of the four ordinary motels (the most affordable of which is a Motel 6).  A significant share of the guests in these four hotels are low income or working class guests are families who stay there more than 29 days at a time on a temporary basis.

Of course, the only reason that there is any place in Greenwood Village that low income people are allowed to live, despite their best efforts to exclude low income people from living in the city, is that long term stays in these four motels created a loophole in their carefully devised scheme of exclusionary zoning that they had not foreseen.

Like the long term residents of similar motels on Colfax Avenue which extends from the eastern border of Golden, Colorado running east to west all the way to Aurora, Colorado in four counties (Jefferson County, then Denver County, then Adams County on the north side of the street and Arapahoe County on the south side of the street), families staying in these low end motels on a long term basis are way stations for distressed families between true homelessness and a more permanent home in an inexpensive apartment, rental house, inexpensive modest house in a poor or working class neighborhood, mobile home, or RV.

The Denver Post ran an editorial today, urging Greenwood Village not to adopt the ordinance, basically on the grounds that it may force families who now have a safe clean space to live temporarily into full fledged homelessness.  But, that is likely to fall on deaf ears.

A Timely Federal Court Decision

A decision today from the United States Court of Appeals for the 9th Circuit concluding that a Los Angeles, California city ordinance designed to prohibit living in your car is unconstitutional, addresses a similar issue, but is unlikely to be applicable to the Greenwood Village case, because the 9th Circuit holding addresses the way that the law is drafted, rather than the substantive authority of Los Angeles to enact ordinances designed to exclude the homeless like their ordinance, even though the 9th Circuit holding is animated by substantive concerns.  Howard Bashman's How Appealing blog summarizes this ruling as follows:

Ninth Circuit declares unconstitutional Los Angeles Municipal Code section 85.02, which prohibits use of a vehicle "as living quarters either overnight, day-by-day, or otherwise": Circuit Judge Harry Pregerson wrote today's ruling of the U.S. Court of Appeals for the Ninth Circuit on behalf of a unanimous three-judge panel. The opinion's concluding paragraphs state:

Section 85.02 provides inadequate notice of the unlawful conduct it proscribes, and opens the door to discriminatory enforcement against the homeless and the poor. Accordingly, Section 85.02 violates the Due Process Clause of the Fourteenth Amendment as an unconstitutionally vague statute. 

For many homeless persons, their automobile may be their last major possession -- the means by which they can look for work and seek social services. The City of Los Angeles has many options at its disposal to alleviate the plight and suffering of its homeless citizens. Selectively preventing the homeless and the poor from using their vehicles for activities many other citizens also conduct in their cars should not be one of those options.

The unlawful conduct prohibited by the proposed Greenwood Village ordinance is much more clear, although it may have a loophole that would permit families without permanent homes living on a long term basis in these motels to cycle from one of the four hotels in Greenwood Village that will take them to another every twenty-nine days in a never ending cycle.  If this loophole is available, Greenwood Village may have a constitutionally valid ordinance, but this may be a mere Pyrrhic victory that does not achieve its true objectives in enacting the law.

Footnote on Election Law and Landlord-Tenant Law Impact

One collateral effect of the ordinance, if it is adopted, was probably not intended, but is probably welcomed by Greenwood Village.  Generally, to establish a valid residence for voter registration purposes (and to some extent also for public school system eligibility), you need to have an intent to live at your current address for the indefinite future and a thirty day threshold for voter registration eligibility has frequently been upheld.

Even if the rotating series of motel occupancy loophole prevents this ordinance from having the City's desired effect of preventing people from living in these motels (collectively) on a long term basis, it probably is effective to prevent the low income long term residents of these motels from acquiring residency in Greenwood Village for election law purposes or for eligibility for public education benefits purposes.

Thirty days is also arguably a cutoff between stays for which legal procedures related to residential evictions must be used to kick out guests who don't pay their bills, and stays for which guests can merely be locked out.  (A news article sets forth the rule to this effect, but I'm not convinced that Colorado law is actually so definitive on this point.  There is a fair argument that this simply alters the amount of advanced notice required for motel owners to utilize the legal eviction process.)

Assuming that long term guests actually use the rotating occupancy loophole (rather than just simply moving to a motel in some other jurisdiction, which is no doubt what Greenwood Village hopes will happen), this ordinance will, at a minimum, also have the practical effect of diminishing the legal rights of long term guests who allegedly have not paid what they owe and of inconveniencing them by requiring frequent moves to new motels.

Background

Greenwood Village is a Denver suburb (entirely or nearly entirely in Arapahoe County, Colorado which is part of the Denver metropolitan area) that is one of the most affluent Colorado municipalities in Colorado (it is the 31st highest income city of 10,000 or more in the United States).  As of the 2000 census, the median household income in the city was $116,147 and the median income for a family was $145,802.  The city's population was 13,925 as of the 2010 census and was 11,035 according to the 2000 census.  Most of the increase in population has arisen from the construction of luxury apartments and condominiums in the city.  This probably brings down the median income, the median age of residents, and their average family size somewhat, although the median income may nonetheless have increased since 2000 since those at this high end of the income scale have increased their share of the economic pie in the last decade and a half.

The number of people who work in Greenwood Village on a typical work day is on the order of 100,000 or perhaps slightly less.

Of course, not everyone who lives in Greenwood Village works in Greenwood Village.  About 60% of Greenwood Village residences are adults aged 18 to 64, and a significant number of them are college students, homemakers, and early retirees (there are probably more early retirees than there are people who are working beyond the "normal" retirement age of sixty-five).  If 75% of the working age population is employed (an estimate greater than the national average that reflects the character of the residents), and if two-thirds of residents who live in Greenwood Village and are employed also work in Greenwood Village (probably also an overestimate, but of the right order of magnitude), then the number of Greenwood Village residents who work in Greenwood Village is on the order of 30% of the City's total population (i.e. about 4,000 or so people in 2010).   Thus, roughly 95% of the people who work in Greenwood Village live somewhere else in Colorado.

Most of the municipality consists of the lion's share of mid-rise building office parks collectively known as the Denver Tech Center, which rival downtown Denver in terms of square footage of office space and is home to the headquarters of many of Colorado's leading businesses.  These office parks are comparable, for example, to the complex of offices found in Oakland County, Michigan in the Detroit metropolitan area.  Interspersed with these offices parks are a variety of retail and service businesses, some catering to people who work in the Tech Center, and some with a wider draw (e.g. a Big Box golf and tennis supply outlet).

The vast majority of people who work at these Greenwood Village businesses (i.e. roughly 95%) don't live there.  Even then, the employees who live in Greenwood Village is probably skewed.  Only a tiny percentage of the administrative, clerical, food service and retail employees live there, a significant but still decidedly small minority of lower level managerial and professional employees live there, and a substantial but still almost surely minority share of senior level managerial and professional employees who work there live in Greenwood Village.  Apart from the households of the senior level managerial and professional employees, most people who both live and work in the Denver Tech Center are singles or newlyweds without children who are renters.

There is lots of middle class housing elsewhere Arapahoe County, which is a first ring suburb of Denver, and there is lots of upper middle class housing in Douglas County, a mix of affluent second ring suburban areas and even more affluent exurbs, which is immediately adjacent to Greenwood Village to the South.  Lower income housing and services for the poor and the homeless tend to be found further to the North, in Denver, which is now accessible to Greenwood Village via light rail.

On the residential side, it is home to some of the most affluent people in Colorado, mostly housing the families of senior executives and high end professionals who work in the Tech Center or Downtown Denver in large lot mansions and mini-mansions in gated communities and to a handful of luxury apartment complexes catering mostly to young professionals and executives who work in the Tech Center (aka DTC).  Greenwood Village also has four medium to high end extended stay hotels mostly serving young managers and professionals relocating to the Tech Center or working on temporary assignments there (often paid for with corporate expense accounts), and four decidedly less expensive ordinary motels that are decidedly less expensive, which are attracted to the location mostly because it is the first urbanized area that someone coming into Denver from the South on I-25 encounters.  There are also a few more expensive hotel/motels that are not pertinent to this post because they don't make rooms available to guests for periods of a month or more as a matter of pre-existing business policies.

Greenwood Village has no trailer parks, RV parks, working or even middle class neighborhoods, no lower rent apartment complex, and no significant service provides for the poor or the homeless.  Indeed, there is probably no place in the city that is zoned to permit this in any place where it is practically viable to do so (e.g. because there isn't already a building with another purpose that is not easily modified in the locations where zoning permits these uses).

Analysis

This situation, called exclusionary zoning, is not an accident.  Unlike many Colorado municipalities, Greenwood Village was incorporated in 1950, after modern zoning practices had been widely adopted.

The strategy adopted by Greenwood Village, which is similar to that of the municipality of Glendale, which is also in Arapahoe County (entirely surrounded by the City and County of Denver), is to make the city attractive for businesses and high end housing by building up a large tax base highly regulated by an urban planning regime that the is joint effort of large tract real estate developers and city planners, while keeping the cost of municipal services (and hence tax rates), low.

Colorado's tax policy encourages this strategy.  Colorado taxes business real estate at a much higher rate for property of the same fair market value than homes, due to something called the Gallagher Amendment to Colorado's state constitution.  Businesses also generate sales tax income and other tax revenue streams that residential development does not.  But, in practice, office space uses demand very little in the way of municipal services, and other commercial uses and high end residential housing generates less of a demand for municipal services than middle class to low income housing.

Exclusionary zoning is a practice that courts, civil rights lawyers, constitutional scholars and academics distrust, but it is not illegal or unconstitutional per se.  Nothing under Colorado or federal law prohibits a municipality from being established primarily for purposes other than long term residential use.  A number of other Colorado municipalities are similarly heavy on non-residential use and have few residents (e.g. Lakeside, Colorado in the Jefferson County, Colorado, Commerce City in Adams County north of Denver, and many resort and casino towns in the mountains).  Cities, and in particular, home rule cities like Greenwood Village, have wide discretion in their authority to develop land use regulations, and not every city must permit every possible use somewhere.

The reason that exclusionary zoning is a matter of concern is that one of the uses that it very frequently seeks to exclude is lower income housing, something that few municipalities have been more successful at excluding than Greenwood Village.  In addition to all the other reasons stated above, and in particular the cost of providing municipal service for lower income people, cities like to exclude lower income housing because they believe that lower income people are inferior neighbors.  City planners, other municipal officials, elected and appointed, and the citizens involved in local government in cities like Greenwood Village to whom they are responsible, would prefer not to have to encounter poor and working class people any more than absolutely necessary, which is also while affluent Greenwood Village residents tend to live in either gated communities or access controlled apartment buildings.  They conclude, not irrationally, that the best way to escape the many urban woes associated with poverty and poor people is to have as few dealings with such people as possible.

But, this raised a perennial problem in urban planning.  There are some uses that the middle class and more affluent people who vote and participate in local government affairs almost universally dislike.  And, the balance that Colorado strikes between tax collection potential from certain uses and the reasonable cost of meeting the service demands of particular uses, also disfavors certain kinds of development (like housing for low and moderate income families) relative to other uses (like commercial and industrial property with brick and mortar retail sales generating properties being the biggest cash cows of all relative to service costs).  The uses that no one wants create "not in my backyard" (NIMBY) problems.  If no individual local government wants to permit a NIMBY use, and there is no overarching way to compel someone to allow it somewhere (which there generally is not in Colorado law), then NIMBY uses that everyone can reasonably agree need to exist somewhere are not permitted anywhere under local land use regulations.

Low income transitional housing for people on the verge of being homeless is one such NIMBY use.  Firms in a free market economy, like Motel 6 in Greenwood Village, are happy to provide it, so long as they can receive ordinary municipal services like criminal law enforcement in exchange for their tax dollars.  But, no local governments are interested in providing it.

Put another way, NIMBY uses are one of the powerful reasons that people who otherwise proclaim strong support for capitalism and lassiez faire economic regulation betray these general ideological commitments when it comes to state and local law making in real life.  These conflicts are inherent contradictions in socially conservative Republican ideologies that those who have to face them do everything that they can to sweep under the rug and ignore so long in public forums and policy discussions, as long as the NIMBY uses stay out of their backyards.

A closely parallel NIMBY v. capitalism narrative arises in the context of proposals to allow local fracking regulation, where again, the free market pushes firms to want to engage in the NIMBY use, but all rational local governments want to forbid it.  But, in those cases, the conflict is more intense, because fracking operations can't be relocated to another jurisdiction.  You have to extract oil and gas from the place where it is actually in the ground, whereever that may be.  Thus, in the fracking case, the common NIMBY solution of bribing a very small number of jurisdictions so that it is worth their while to accept NIMBY uses that others avoid, doesn't work.

So far, this sounds snobby and uncharitable.  Maybe it even sounds like bad public policy that allows individual municipalities to kick the can of public responsibilities elsewhere giving rise to NIMBY issues as discussed above.  But, the real live wire concern that animates concern about exclusionary zoning, particularly in high income cities whose residents are disproportionately socially conservative Republicans n places like Greenwood Village, is that there is, in practice, a strong overlap between race and income and social class.  Anecdotal evidence, moreover, suggests that covert racism is alive and well in private socially conservative Republican circles.

Policies designed to exclude low income people from a city may be elitist, but to the extent that these policies have a co-extensive purpose to exclude blacks and Hispanics from living in a city, those policies violate state and federal civil rights laws.  And, distinguishing between lawful non-race based policies that go into decisions about what are reasonable building codes or what occupancy periods are allowed in ordinary motels, and impermissible race based motives, is often very challenging.

Civil Unions Bill Headed To Governor In Colorado

The Colorado General Assembly has passed a civil unions bill (Senate Bill 11) which is headed to Governor Hickenlooper who is sure to sign the bill.  It was passed without any amendments in the state house.  The bill affords same sex couples (or opposite sex couples who choose to have a civil union rather than a marriage) virtually all of the legal protections and rights and obligations of marriage.

The bill will become law on May 1, 2013 (assuming that Governor Hickenlooper signs it later this month as expected), with Colorado then becoming the eighteenth state to have same sex marriage or civil unions (except that one provision relating to health insurance coverage takes effect January 1, 2014).

State Constitutionally Rooted Limitations

A state constitutional amendment adopted in a 55-45 vote in 2006 prohibited the Colorado General Assembly from passing a same sex marriage bill without a state constitutional amendment approved by voters, which is likely to be proposed in the near future. The bill also does not authorize civil union members to file joint income tax returns at the state level because the Colorado state constitution provides is derivative of federal tax laws.  The lack of full marriage status could matter for a variety of federal law purposes, such as immigration laws and federal tax laws.

Legislative Supporters

The bill was sponsored by State House Speaker Mark Ferrandino (D-Denver) and State Senator Pat Steadman (D-Denver), both of whom are gay men who have represented me in the Colorado General Assembly in the past (I've since moved and am no longer in either man's district).  I served on the vacancy committee that elected Steadman."  There are currently five gay or lesbian representatives out of sixty-five in the state house and three gay or lesbian senators out of thirty-five in the state senate in Colorado (all of whom are Democrats), a reasonable approximation of the proportion of Coloradoans who are gay or lesbian.

Republicans killed civil unions bills in two previous legislative sessions (as detailed here).  Twenty-six out of the twenty-eight Republicans in the state house voted against this bill this year.  In the state senate this year, fourteen out of fifteen Republicans voted against the bill.  Thus, the bill won the votes of 63% of state house lawmakers and 60% of state senators in addition to the support of Governor Hickenlooper, a Democrat.  All of the Democrats in the Colorado General Assembly and three Republican women (Representatives Cheri Gerou of Evergreen and Carole Murray of Castle Rock, and Senator Jean White of Hayden) voted for the bill.

White cited support for a gay niece and nephew in her part of the floor debate.  My current State Senator Linda Newell (D-Littleton) whose bumber sticker graces my car, said this vote was for her gay brother Bill who didn't come out until he was fifty years old.

Westminster Mall Slated For Major Infill Development

Following the successful examples of redevelopments the moribund Cinderella City mall in Englewood, the Villa Italia mall in Lakewood (now Belmar), and the Southglenn Mall (now "the Streets at SouthGlenn, a 70-acre outdoor shopping, entertainment and residential area"), the City of Westminster, a Denver, Colorado suburb, has acquired most of the property in the dying 108 acre Westminster Mall ("all but the Sears store, the Brunswick Zone and a small office building, all of which will remain open. The city also plans to keep the J.C. Penney store open.") near U.S. 36 and Sheridan Boulevard, which it plans to redevelop as a municipal downtown with "5 million square feet of offices, residences, restaurants and shops."

Westminster Mall opened in 1977 with 30 stores. Within 10 years, it became among the most popular malls in metro Denver, adding May D&F and Mervyn's in 1986, followed by J.C. Penney a year later. At its peak, the mall had about 300 stores, a far cry from the 15 that remain open today. The city and the current owner invested $10 million to renovate the mall in 2000-01.

These suburbs were frequently developed in the wake of the construction of the interstate highway system as bedroom community subdivisions, rather than as traditional municipalities with a central commercial and government downtown district, usually had strictly segregated residential and commercial zones, and saw little downside to sprawling parking lots that were distant from individual shops in retail district, a set of flaws that has left these communities without souls or character that left them vulnerable to New Urbanist land use approaches.

The transition has also been inspired by ongoing Red Queen hypothesis style conflicts between municipalities for a stronger tax base. 


The Gallagher Amendment, passed by voters in 1982 in Colorado and phased in over the next several years causes residential real estate to be taxed at a lower percentage of its value than non-residential real estate. Also, for a variety of reasons, many municipalities have tended to favor sales taxes over property taxes as a revenue source. This means that communities with predominantly residential real estate tax bases and little retail development must impose much higher property taxes to pay for the same municipal services as communities with substantial commercial, and in particular, retail development. The combination of higher property taxes and inferior municipal services, in turn, drives down housing values in these communities creating a vicious circle. Cities with office building developments can turn to head taxes and, at least, benefit from larger property tax bases, but the bedroom communities planned in the late 1950s, 1960s, 1970s and early 1980s have suffered in this local taxation environment.

Retail development, in contrast, through a combination of its non-residential property tax rates and the sales tax revenue that it generates typically raise far more in local taxes than the cost of the governmental services that they consume (and draw significant volumes of tax dollars from non-residents), subsidizing municipal services for residents of the municipality and making housing in those municipalities more attractive.

So, there is a strong incentive for local governments in Colorado to do everything possible in a never ending struggle to lure retail developments with robust sales from their neighbors, even if this creates excess retail capacity in the aggregate that leaves a suburban landscape littered with dead shopping malls that have failed to keep up with the competition. For example, in the case of the Westminster Mall, the City and County of Broomfield's new Flatiron Crossing Mall and thriving retail development in Boulder sucked much of the remaining life out of the older Westminister Mall.

Mixed use mall to downtown redevelopments try to mute the competition by not focusing so intensely on destination retail shops that can be picked away easily by new retail developments.  Instead, they favor of residential uses and governmental uses that are sure to stay put, and location sensitive retail options that are more likely to continue to be supported by local residents even if a new destination retail mall springs up. These developments also bet that the steady stream of traffic from residential and commercial and governmental users who are relatively wed to the location will make the area attractive to other retail uses on an ongoing basis.


These redevelopments try to boost the brand of the suburb's housing stock (and hence property values) by giving the municipality more of an identity, a more positive character and more definition.

This development joins a major new development planned for the Chatfield Reservoir area, the redevelopment of the old University Hospital complex on Colorado Boulevard, and a number of transit oriented developments along light rail lines that are heating up as the real estate industry in Denver starts to recover from the financial crisis. Insiders in the industry that I've spoken to discount these major projects as mere "dreams" until more concrete steps to implement them progress, but the planning for a wave of new real estate development in the Denver metropolitan area, much of it infill, is underway.

Fed Taxes At 60 Year Low; Colorado Taxes Low

With all the rhetoric that the Tea Party has generated about controlling growth in government at the federal government level and in Colorado, you might think that taxes are unusually high. But, this isn't the case. Federal taxes are at a sixty year low and Colorado taxes are well below the national average.

Also, while the federal government is running big deficits, Colorado's state budget has to be balanced every year.

Federal Taxes Are At A Sixty Year Low

Federal taxes are currently a smaller share of the nation's economy than they have been at any time since 1950 at 14.8% of GDP (compared to 17.5% of GDP during George W. Bush's last year in office). CBO projections that federal tax revenue will increase ignore the extension of the Bush tax cuts and other tax cuts passed at the end of 2010. (Taxes during World War II were also much more onerous than they are today.) The average tax burden of the median family as a percentage of income is also the lowest it has been in many decades (at least as far back as 1955).

The top marginal tax bracket isn't quite at an all time low, although it is close. But, a large share of the income of the highest income Americans consists of tax exempt municipal bond interest, and qualified capital gains and dividends that are taxed at a top rate of 15%. This rate is also paid on carried interest income of private equity fund managers and the stock option income of top executives in big businesses. The 400 highest income Americans paid an average tax rate of 16.6%, down from 30% in 1995.



Thirty-six percent of federal tax return filers owe no taxes, a record high. Forty-seven percent of American households owe no federal income taxes.

Federal estate taxes are lower than they have been in any year since at least 1934, except 2010 when they were suspended for a year.

Federal taxes are generally progressive.

Quintile - Combined 2010 Federal Taxes (incl. corp. tax incidence) as % of Income
Bottom 0.0%
Second 7.3%
Middle 14.1%
Fourth 18.4%
80th-95th Percentile 22.3% (calculated personally from information in source)
95th-99th Percentile 25.0%
Top Percentile 26.0%
Top Tenth of A Percent 27.7%

Note that individual tax rates for the upper middle class are higher than those of the highest income earners, because the upper middle class receives mostly earned income which is taxed at a higher federal rates than the investment income that makes up most of the income of the highest income earners.

Corporate income taxes which indirectly tax cprporate shareholders, significantly mitigate this effect. Corporate income taxes are one of the most progressive taxes as applied in the mix of federal taxes, even moreso, in practice than the estate tax, on average. Corporate income taxes provide just under a third of all federal taxes whose incidence falls on the top 0.1% of income earners, while in 2011 (in which we have a restored by lenient estate tax), estate taxes will account for just 2.5% of that top 0.1% of income earners' tax burden.



If the secret to economic growth is low taxes, our economy should be in great shape. Of course, in reality low taxes are, if anything, negatively correlated with economic growth and not closely related to it in any case, and our economy is still in pretty dismal shape.

How High Are Corporate Tax Rates In Practice?



But, what about the horrible job killing corporate income tax with a top marginal rate higher than most of our developed world peers? (The average corporate tax rate in the 34 O.E.C.D. nations is 26 percent.)

Well, it isn't as terrible as it seems. The top marginal rate on the books is 35 percent. But, most corporations don't actually pay those rates, due to a variety of tax reduction strategies.

Of the 500 big companies in the well-known Standard & Poor’s stock index, 115 paid a total corporate tax rate — both federal and otherwise — of less than 20 percent over the last five years. . . . Thirty-nine of those companies paid a rate less than 10 percent.

The corporation that owns Carnival Cruise lines pays corporate tax rates of 1.1% on its profits.

Over the last five years, on the other hand, Boeing paid a total tax rate of just 4.5 percent, according to Capital IQ. Southwest Airlines paid 6.3 percent. And the list goes on: Yahoo paid 7 percent; Prudential Financial, 7.6 percent; General Electric, 14.3 percent.

Some corporations do pay significant corporate taxes, although their average amount paid to all levels of government combined is still far below the top federal rate alone:

The average total tax rate for the 500 companies over the last five years — again, including federal, state, local and foreign corporate taxes — was 32.8 percent. Among those paying more than the average were Exxon Mobil, FedEx, Goldman Sachs, JPMorgan Chase, Starbucks, Wal-Mart and Walt Disney.

There are wide differences between industries, (see also here) with the R&D tax credit explaining a large part of that discrepency.

As a result of [the drug industry's credit for research] and other tax breaks the pharmaceutical industry pays just 5.6 percent of its profits in taxes. This puts it just above the biotech industry, which pays 4.5 percent of its profits in taxes.

Tax burdens are also very low for the motion picture industry.

Hindsight has cast doubt on the benefits of low corporate income tax rates. The two lowest corporate income tax rates in the OECD are those of Ireland (12.5%) and Iceland (15.0%) (the U.S. rate, based on average state levies is deemed to be 39.1%). What happened to them? Ireland is in a state of utter economic collapse and Iceland went bankrupt. Also at the low end in corporate income tax rates is Greece (25.0%) which has just thrown the European economy into a tizzy as it had to be bailed out. Few American policymakers are hoping that our economy becomes more like that of Turkey (20.0%) either.

Germany, whose economy is generally viewed as being one of the healthiest in Europe has a top corporate tax rate of 30.18%. The only countries with higher corporate tax rates are Japan (39.54%), the U.S., France (34.43%), Belgium (33.99%) and Canada (31.32%), and many of those countries have less generous tax loopholes than the United States.

Also, there are multiple ways to tax corporate income. While the U.S. has high corporate income tax rates relative to other OECD countries, it has low long term capital gains tax rates that partially compensate for its corporate income taxes, and many OECD countries have wealth taxes that are like real property taxes but apply to a person's entire net worth, thus imposing a significant tax burden on people with large stock holdings that is not present in the United States.

Colorado's Tax Rates Aren't High

Are Colorado's tax rates high? No.

Colorado's overall tax rates are 33rd in the nation, i.e. well below average, according to one study, and 34th in the nation, according to another study.

Thirty-one percent of tax filers in Colorado owe no taxes.

Colorado's average combined state and local sales tax rate is 6.98% (2.9% state and an average of 4.08% local), which ranks 24th in the nation.

Colorado is one of twenty-eight states without a state level estate or inheritance tax. In 2006, there were 210 estates in Colorado (0.7% of all decedents estates in Colorado) that owed federal estate taxes. In 2011, the number will be considerably smaller as the estate tax exclusions have been increased.

Colorado's property tax rates on residences as a percentage of home value are the 39th lowest in the nation. (They are 36th lowest relative to state income.)

Colorado's corporate income tax is a smaller share of its total business tax collections than all but eight other states (five of which: Nevada, Ohio, Texas, Washington and Wyoming, don't have a corporate income tax). The combined federal and Colorado top corporate tax rate is 37.8% which is lower than every state but Alabama, Texas, Nevada, South Dakota and Wyoming. Nevada's lack of a corporate income tax hasn't prevented that state from having one of the most troubled economies in the entire United States.

Colorado's overall mix of state and local taxes is typical for the United States, and has changed very little in the last decade. This mix of taxes in Colorado is quite regressive as of October 2009:

Quintile - State and Local Taxes as a Percentage of Income
Bottom 9.0%
Second 9.0%
Middle 8.2%
Fourth 7.5%
80th-95th Percentile 6.3%
95th-99th Percentile 5.4%
Top Percentile 4.2%

Colorado's overall state and local tax system is regressive primarily as a result of its reliance upon sales and excise taxes. The combined effect of Colorado's income and property taxes is close to, but not exactly, flat.

Approximately what is the combined federal and state and local tax rate by income level in Colorado?

Quintile - Combined Taxes From All Sources as % of Income In Colorado
Bottom 9.0%
Second 16.3%
Middle 22.3%
Fourth 25.9%
80th-95th Percentile 28.6%
95th-99th Percentile 29.4%
Top Percentile 30.2%

Thus, when taxes from all levels of government are considered in Colorado, the overall effect is progressive.

Do low state tax rates lure high tech businesses? No.

National Taxpayers Union Not A Serious Think Tank

Any think tank that can recommend that Colorado voters give the thumbs up to Propositions 60, 61, and 101, as the National Taxpayers Union does in its voting guide this year, is not a serious think tank of people with any clue about public finance. The organization also opposes every single local government mill levy or bond issue in the state.

In the view of this organization, spending money on government services, no matter what the benefit or need, is always a bad thing. It believes in "starve the beast" even if you're riding it.

Should Colorado Restore The Pickup Tax?

If Congress takes no action this year on estate tax legislation, in 2011, the status quo is that it will revert to an estate tax exemption of $1,000,000 per decedent, with graduated rates that start at 37% for the first marginal dollar beyond the exemption amount, a top normal rate of 55%, and a "bubble rate" of 60% that reclaims the benefits of lower progressive rates in large estate before reverting to 55%.

Under the old regime that we will revert to if Congress remains in deadlock, there was a credit against the federal estate tax due for state estate taxes that did not change a person's overall estate tax liability. It simply allowed states to "pick up" a share of the federal tax due.

Colorado repealed its pick up tax when the estate tax legislation in effect through this year was passed, because the state estate tax credit was repealed and replaced with a deduction. But, if the state estate tax credit returns to the tax code for a while due to Congressional inaction, should Colorado re-enact its pick up tax?

A Congressional deadlock is unlikely to last for very long. The President and a plurality of Democrats want to return to something close to the 2009 status quo, with a $3.5 million exemption amount, at 45% tax rate on non-exempt assets, and no state estate tax credit. A small number of Democrats and most Republicans want to increase the exemption and lower estate tax rates, or to abolish the estate entirely. Only a small minority of Democrats actually want the estate tax to be restored to the levels it will unless Congress acts otherwise. So, sooner or later, some sort of deal will probably be reached to abolish the utility of a pick up tax again.

But, given that most outsider observers were sure that compromise legislation would be enacted by late 2009, and in fact, estate tax legislation is almost certain not to be passed any sooner than after the election in 2010, there is a real chance that there will be a temporary chance for Colorado to secure some pick up tax revenues from those decedents unlucky enough to die in early 2011 with the toughest estate tax in a decade, rather than in late 2010, during which there was no estate tax in force.

From a policy perspective, it seems clear that Colorado should put a pickup tax back on the books. A pick up tax imposes no additional taxes on Colorado decedents, costs almost nothing to collect since the auditing and return processing work is done by the federal government, and provided a meaningful source of state revenue to a cash strapped state when it was in force. It would cease to collect revenue automatically, however, when and if Congress were to reach a compromise abolishing the state tax credit again.

Practically, however, this kind of nimble action may be out of reach, because enacting a "pick up tax" would probably be counted as a new tax for TABOR purposes, which requires a popular vote to be approved, and that probably couldn't happen swiftly enough for Colorado to take advantage of what will probably be a temporary revenue opportunity. Still, is a tax really a tax if it doesn't require anyone to may more to the government than they did before it was enacted? This seems as fair a way as any to define a tax for constitutional purposes under TABOR, and constitutional language should be interpreted with an eye towards the measure's intent, which is clearly focused on revenues raised as much as it is on formal labels.

It would certanly be worth a try in the 2011 legislative session. At best, it raises millions of dollars that could be devoted to activities under budget stress, like higher education. At worst, a little legislative time out of a largely fixed supply of legislative time and money will go towards the bill and it will be declared in violation of TABOR, with no real harm done.

Alternately, Senators Udall and Senator Bennet, along with Senators from other similarly situated states, could try to squeeze legislation into must pass omnibus spending and tax extender bills in the lame duck session this year that would transfer the amount that would otherwise have been due to states under their pickup taxes, as unrestricted block grants to those states, in the event that no further compromise is reached on estate tax reform. This would be something of a long shot, but given that so many states are hard pressed budgetarily, and the way it appears to a sense of fairness among the states that matters more in the U.S. Senate than anywhere else, it might have a ghost of a chance of making it into legislation that becomes law in 2010.

Is The World Really Going To Hell?

The divorce rate in America is at a 30-year low. The Centers for Disease Control and Prevention puts the current divorce rate at 3.5 per 1,000, down 8 percent in the last five years, 16 percent since 2000, and a staggering 34 percent since its peak in 1979. Roughly 20,000 fewer American couples are divorcing every year as compared with a decade ago.

From here.

* Traffic deaths are at record lows.

Traffic deaths last year in the United States fell to the lowest level in 60 years, according to the National Highway Traffic Safety Administration.

The 33,808 deaths in 2009 represented a 9.7 percent decline from the previous year, the safety agency said on Thursday.

The number of injuries also dropped to 2.22 million last year from 2.35 million in 2008.

The agency said preliminary estimates showed Americans drove 0.2 percent more miles in 2009 than the previous year. . . . passenger-car fatalities have dropped for the seventh year in a row. Fatalities in light trucks, like pickups and sport utility vehicles, have dropped the last four years.

From here

* The crime rate (per 100,000 people) fell for every major type of crime from 2000 to 2009, from 2005 to 2009, and from 2008 to 2009. The car theft rate (car thefts per 100,000 people) has fallen 37.9% from 2005 to 2009.

* Inflation is very low, but positive (about 1.2% in the last year), which means that the misery index is actually at unexceptional levels by historic standards, despite high unemployment.

* There has been a dramatic reduction in the number of checks that are bounced. There were 24% fewer bounced checks in Denver in the first six months of 2010, and 41% fewer in Jefferson County, a suburban Denver county.

* Fiscal sanity is a bipartisan issue in Colorado.

Twenty-three of 27 GOP lawmakers in the state House and five of 14 GOP state senators have signed a letter addressed to all Colorado Republicans urging defeat of [Initiative 60, 61 and 101].

From here.

Cory Gardner, one of only four in the House GOP not to sign the letter, who is the Republican nominee in the 4th Congressional District, also opposes the measures.

The measures would make the state's budget even tighter, requiring 99% of general funds money to be spent on K-12 education by cutting taxes, and limiting the ability to state and local governments to borrow money.

* Video games may be good for you: "Playing shoot-‘em-up, action-packed video games strengthens a person’s ability to translate sensory information quickly into accurate decisions."

* The Obama administration is strongly considering not appealing a court ruling that the military's "Don't Ask, Don't Tell" rule is unconstitutional.

Economics Bloggers On Tweaking Taxes

Gas Taxes and Carbon Taxes Favored

The "top 200" economics bloggers strongly favor increased gasoline taxes and carbon taxes.

I agree.

Gasoline taxes make more sense as a way to fund roads than general fund revenues, since they act as a rough justice user's fee. Gasoline taxes also encourage conservation of a scarce resource, while at the same time discouraging air pollution. And, every nation in the world other than the United States taxes gasoline at rates far higher than we do. U.S. gasoline taxes have also gone down in inflation adjusted terms, because U.S. gasoline taxes are calculated on a cents per gallon, rather than a percentage of total price basis. As a result, gasoline tax revenues have not kept pace with the rising costs of maintaining our roads and bridges.

Carbon taxes are taxes on fossil fuels designed to reduce air pollution that are based on anticipated carbon emissions from a given amount of fossil fuel consumption. Some proposals would include a gasoline tax, others would tax fossil fuels other than gasoline on the theory that gasoline is already taxed. A carbon tax would increase utility bills, would encourage homeowners who use heating oil (still widely used in the Northeast) to switch to natural gas, and would encourage utility companies to generate electricity with natural gas, renewable energy sources and nuclear power rather than coal. Increased awareness of the public health and climate change risks associated with excess air pollution probably makes the purpose behind these taxes more popular.

Carbon taxes also have the virtue of being easier for companies to plan in response to, and easier to administer, than alternatives like cap and trade markets in rights to pollute, and don't have a built in bias in favor of existing polluters. But, unlike cap and trade policies, they force governments trying to meet treaty obligations on overall emissions levels to make predictions on the impact that carbon taxes will have on behavior that have the potential to be wildly off the mark. In a cap and trade regime, the determination of the actual effective tax rate on carbon emissions is set by the marketplace rather than by government economists. This is less of a concern in the gasoline tax area, where gasoline consumption's responsiveness to price is better understood and raising revenue rather than modifying behavior is the primary objective.

Carbon taxes, or cap and trade systems, however designed, favor manufacturing in states like California, Oregon and Washington that have quite green energy sources, over manufacturing in states that do not.

Gasoline taxes and carbon taxes also secure more support because they are primarily microeconomic rather than macroeconomic tools. There is much greater consensus among economists about their discipline's microeconomic conclusions than there is about their discipline's macroeconomic conclusions which are currently rather battered in the wake of a massive collective failure of mainstream macroeconomics to predict the financial crisis or sound the alarm on the need for regulatory action to mute it.

Customs Duties

Customs duties (i.e. taxes on imports) are not popular with economics bloggers who generally favor free trade over protectionism and mercantalist trade policies. Economists have disliked customs duties since the days of Adam Smith and can hardly be expected to change their views now. The argument in favor of customs duties is that they can compensate for taxes that domestic producers have to pay that importers avoid in tax regimes where retail sales taxes (that treat domestic and imported products the same) are not the dominant source of government revenue.

It would be interesting to see if customs duties would receive a warmer response if they were imposed only on countries that have weak environmental laws or poor protections for workers or large government crop subsidies, as a tool of diplomacy to discourage this kind of race to the bottom that creates an uneven playing field in the world economy.

This case could be particularly strong politically if it was possible to make credible consensus estimates of the impact that these laws have on import prices. For example, a tax could be imposed on imports, in lieu of a carbon tax, based upon the estimated carbon emissions involved in producing those goods in a particular country. This would have the practical effect of making imports from countries like China, which has an economy heavily reliant on coal, considerably less competitive relative to domestic goods which tend to be produced with cleaner energy sources. Goods certified to be produced with green methods or upon which domestic carbon taxes had already been paid might be exempted from this kind of customs duty or entitled to a credit against them.

Since we mostly import goods rather than services from high pollution countries, a customs duty in lieu of a carbon tax would provide the most economic benefit to places where manufacturing is most important, the Rust Belt, and the less widely known "New Rust Belt" in Appalachia. It would have a much smaller effect on imports of high end goods from the developed world, where pollution controls are strong, than it would on imports of low end goods from the second world, where pollution controls tend to be weaker and manufacturing activity is great.

Labor unions have made level playing field arguments in vague terms, but have failed to get much traction politically, except in cases where foreign competitors are selling products at below cost in an effort to wipe out U.S. industries in the long run. But, outside this very narrow context, the imposition of customs duties simply to protect a domestic industry without a more widely relevant justification looks like pure special interest lobbying that has gained neither academic nor popular support.

International treaties like NAFTA and GATT as administered by the WTO also limit the ability of lawmakers to use customs duties in these ways.

The United States is such a large market that it could be quite effective if it used this tool, and would be even more effective if it did so in concert with the European Union, which is a single entity for customs duty purposes.

Big Picture Tax Policy

About half of economics bloggers favor a "flatter" (i.e. less progressive but not regressive) tax burden, about a quarter favor greater progressivity (i.e. tax the rich more), and about a quarter like the status quo. I would note that the status quo of federal, state and local taxes combined is very close to flat, despite a common perception to the contrary, mostly as a result of a tendency to focus on federal income taxation in isolation. Those who favor a "flatter" tax policy either really favor more regressive taxation or don't realize how close to their goal we already are now.

Economics bloggers tend to favor a shift towards consumption taxes and away from income taxes (particularly corporate income taxes). There is an even stronger consensus among economics bloggers that payroll taxes are too high.

The main difference between consumption taxes and income taxes is that consumption taxes don't tax investment income and tax money that is saved only when it is withdrawn and spent, while income taxes, in theory, tax income when it is earned.

In practice, the difference between consumption taxes and income taxes is not as great as it appears. A panopoly of tax breaks for investments mean that the income tax burden on unearned income is much lighter than the income tax burden on earned income at all income levels, and taxation on income that is saved can often be deferred through, for example, retirement accounts, education savings accounts, health savings accounts, and reinvestment of capital gains.

The strong preference for consumption taxes over payroll taxes is also a bit of a mystery. Both are generally imposed at flat rates. Both generally leave investments untaxed. Differences in the ways that high and low income people make income and spend their income, in practice, make many of the theoretical differences between consumption taxes and payroll taxes smaller than they appear. In practice, both kinds of taxes are moderately regressive. And, both involve low administrative costs and relatively low levels of tax evasion compared to more complex income tax regimes.

Also, payroll taxes are generally ear marked for transfer payment programs. For those on the right, this provides a limtation on goverment mismanagement of money, and most economists see taxes that fund transfer payments as close to economically neutral. For those on the left, it is worth noting that most of the regressivity in payroll taxation is offset by progressivity in the programs funded with payroll taxes like Social Security, Medicare and unemployment insurance. In contrast, revenues from consumption taxes, both retail sales taxes and value added taxes, are generally used for general fund expenditures.

It could be that economics bloggers see virtue in taxing people who cash out their investment income (which payroll taxes do not). But, since lower income people don't generally have much investment income period, and higher income people tend to save a larger share of their income, this theoretical distinction isn't as meaningful as it appears. It could also be that the combined package of consumption taxes and general fund spending is more regressive than the combined package of payroll taxes and transfer payments, and that overall conservative leaning economics bloggers tend to favor the former.

The stark divide in attitudes in the economics blogging towards consumption and payroll taxes is further evidence in my view that economics remains a field heavy on ideology and theory, and weak on empirical evidence.

Questions Not Asked

A couple important questions about tax policy weren't asked, but are worth mentioning.

Tax Base v. Tax Rates

It is clear that no one is going to repeal the income tax, as governments need that revenue and replacement of the income tax with a consumption tax is politically impossible. The more realistic question that is policy makers face regularly is whether it is better to broaden the income tax base to keep income tax rates lower, or whether it is better to use income tax breaks in the hope of supporting economic growth while leaving income tax rates higher.

Good government types and "mainstream" economists tend to argue for a broad tax base that takes government out of economic decision making. But, there is never a shortage of economists making their way to Gucci Gulch to argue that particular base narrowing tax breaks would be good for the economy. Base broadening tax reforms, like the 1986 revision of the federal income tax, and the current legislation in Colorado to repeal or suspect sales tax exemptions, are the rare exception and tend not to be long lived.

Corporate Income Taxes v. Publicly Held Security Taxes

Another question it would be interesting to hear the opinions of economics bloggers on is the proposal to replace corporate income taxes (which they don't like very much) on a revenue neutral basis with a property tax on the market value of a corporation's public held securities.

A tax on the market value of publicly held securities doesn't pose nearly as many incentive and tax administration issues as a proposed tax on trades in securities. A tax on publicly held securities could raise as much revenue as the current corporate income tax with considerably less administrative cost for both the government and the taxed corporations. A tax on publicly held securities doesn't favor debt over equity as current corporate income taxes do with a strong negative effect on the robustness of our big business sector during downturns. And, developments like the S corporation, the limited liability company and the device of paying owner-operators of C corporations large bonuses, mean that privately held companies almost never pay corporate income taxes anyway. The existing corporate income tax has also been roundly criticized in academic and theoretical circles for constituting "double taxation" and in the popular press for its inability to collect revenue even from large publicly held companies with large profits from a financial accounting perspective. Property taxes, generally, also have the effect of having a zero percent marginal tax rate on additional income (although changes in market value in response to earnings changes would probably mute this effect).

Companies that don't want to pay a tax on publicly held securities, which may have difficulty doing so because they are growth companies with low earnings and high market value, can also delay going public, or be financed with private equity and ordinary business loans rather than publicly offered bonds.

Since publicly held securities are disproportionately owned by the affluent, the incidence of the tax would probably be quite progressive, but it might not be that different in incidence than existing corporate income taxes. Most investors have diversified porfolios of publicly traded investments so big differences in the amount of tax due from individual companies might not have much of an impact on the investors who own them.

Bruce Behind "Bankrupt Colorado" Initiatives

TABOR mastermind Doug Bruce tried to hide the fact that he was involved with three citizens initiatives headed for the ballot that would leave Colorado bankrupt by depriving it of revenues (previous coverage of the measures is found, e.g., at this post). But, it has come out that eight of the petition circulators were living at his house while they did their work. It is safe to infer from this that his involvement in these anti-tax measures was more than arm's length.

Towards A Colorado VAT?

Colorado is in a long term revenue bind, because the legislature has not had a free hand to balance spending cuts and new revenues as a result of TABOR, and one way to address the issues would be to have voters approve a proposal to replace our current retail sales tax with a value added tax.

Retail Sales Taxes In A Nutshell

An American style sales tax is a tax imposed on retail sales of non-exempt goods. Usually, housing, grocery store food, gasoline and drugs are exempt, on the theory that they are necessity. Services are exempt because they aren't goods. Wholesale purchases and purchase by businesses that are used to create goods are exempt because they aren't retail sales.

There is also an exemption for sales from sellers with no presence in the state (but not from "use taxes" on in state buyers), usually involve internet sales or mail order sales, that arises from constitutional tax jurisdiction principles, rather than tax policy.

Retail sales taxes geographically fix the ultimate tax burden and revenues at the place of the final retail sale of the goods, exemption all wholesale suppliers of goods and services from tax.

From a collection perspective, retail sales taxes make irrelevant non-reporting by customers and wholesale goods and service providers, leaving the state with a relatively small universe of potential taxpayers to collect from, many of whom must advertise widely and reveal themselves to the general public (including tax collectors) in order to operate. But, an unreported sale deprives the state from all revenue associated with that sale.

Value Added Taxes In A Nutshell

In contrast, in a value added tax, common in Europe, both goods and services are taxed at both the wholesale and retail level, there are fewer exemptions, and the value added taxes already paid by suppliers and service providers of someone who then sells goods is a credit against the taxes due on the gross amount.

Value added taxes are typically included in the final sales price where they are used, while retail sales taxes in the United States are typically imposed on top of a final sales price. But, value added taxes are not "invisible" to anyone but a retail consumer, because wholesale buyers must receive proof of payment of value added taxes from the the sellers of goods and services in order to claim those taxes paid as a credit against their own value added tax obligations.

Value added taxes collect more revenue than sales taxes at comparable rates, because they have a broader tax base. Value added taxes can also be easier to enforce as a practical matter, because unpaid taxes at an early stage of production are recouped at later stages of production, while paid taxes at early stages of production reduce potential revenue losses if a final retail sale is not reported and taxed.

Value added taxes geographically spread the tax burden and revenues from the tax across all of the places in the chain of production relative to the value they add to the final purchase price. So, for example, if a good is completely assembled in Colorado, but sold in Wyoming, the wholesale price would be taxed in Colorado, while the additional margin made at retail would be taxed in Wyoming.

Goods produced in a value added tax state and sold in a retail sales tax state are, conceptually, double taxed. Goods produced in a retail sales tax state and sold in a value added tax state are, conceptually, under taxed.

Sales Taxes In Colorado

In Colorado, retail sales taxes are a key component of both state and local tax revenues. At the state level, Colorado has both an income tax and a retail sales tax. At the local level, most Colorado local government have both a property tax and a retail sales tax.

Several of Governor Ritter'sproposed suspensions of sales tax exemptions in the state budget to be adopted this year, moves Colorado in the direction of a value added tax, by bringing non-retail sales and arguable services into the sales tax net, while also expanding the retail goods tax base. The taxes on wholesale purchase include suspensions of exemptions for:

"[P]urchases of energy used in manufacturing.";
"[P]esticides.";
"[C]artons, napkins, condiments, plasticware and other items used to serve food at restaurants.";
"[P]rinted materials used in direct-mail advertising."; and
"[A]nimal vaccines, hormones, animal drugs, bull semen and other compounds used in agriculture."

Meanwhile, "expanding the definition of what type of software is taxable, including software purchased online," pushes the boundary between goods and services.

The end of the exemption for "candy and soft drinks" represents a move to tighten the fit between necessities exemptions and true necessities. (The flip side of that debate has been an off and on campaign to exempt diapers from sales taxes, which is at a disadvantage in a tight budget year.)

Local governments, particularly in mountain areas, have narrowed the "necessities" exemption even further by imposing real estate transfer taxes, which amount to retail sales taxes on real estate including housing. In part, this makes sense in the context of necessity doctrine because most real estate in these areas are second homes, rather than primary residences (which workers often have to lease because they can't afford to buy).

A pledge to more strongly enforce uncollected sales taxes on internet sales also, of course, doesn't change the tax base.

What Would A Value Added Tax Mean For Colorado?

A 2009 journal article on Canadian experience, where this was done, provides empirical evidence regarding what would happen if Colorado made this change.

Over a decade ago, several Canadian provinces replaced their retail sales taxes with value-added taxes. . . . [T]he reform led to significant increases in machinery and equipment investment, at least in the short run.

This is consistent with the non-obvious fact that a value added tax is economically similar to an income tax with an exemption for investment income.

Of course, a complete switch from a retail sales tax to a value added tax is sufficiently radical that it would be a surprise to see in the state. But, one can view that theory of taxation as a pull on tax policy makers on an axis from one proven workable tax (the retail sales tax) to another (the VAT) that can explain what is going on in individual legislative and budget proposals for sales tax amendments.

Colorado could, for example, in an impure version of a value added tax, expand its tax base to cover some services and wholesale purchases, raise more revenue, and yet actually decrease the tax rate paid on any particular transaction, while minimizing the problems associated with having a different kind of tax than its sister states.