Editors’ Note: In the Spring 2005 NPQ, Chuck Collins discussed how nonprofit organizations need to respond to the federal and state “shrink, shift, and shaft” agenda of anti-tax organizations. In this issue, Karen Kraut highlights the crucial work nonprofits are beginning to do to raise revenue and to fight back against a growing threat to the very essence of state government.
I remember the day I realized I needed to understand taxes,” said Beth McConnell, director of the Pennsylvania Public Interest Research Group (PennPIRG). “We and our allies were lobbying in the state capitol of Harrisburg to protect public services like funding for public transit and medical assistance. But all the elected officials we met with, even our allies, kept saying, ‘We sympathize, but there’s no money because of the budget deficit.’”
“It was a real wake up call,” said McConnell. “Talking only about spending programs is a luxury now. We’ve got to talk about where the revenue is going to come from.”
All across the country, nonprofit organizations are dealing with the long-term effects of three decades of effective organizing by anti-government, tax-cutting conservatives. Advocacy organizations have found themselves pitted against one another, fighting for pieces of a shrinking revenue pie. In state after state, activists are coming to the same conclusion: we must deal with the revenue part of the equation, and together fight for a bigger pie.
For most nonprofit organizations, tax policy isn’t a bread-and-butter issue. Complex and a little intimidating, taxes seem more the domain of economists and politicians than of human service or consumer advocates. But that is changing rapidly.
When PennPIRG sought out ways to get involved in efforts to raise revenue, it did not need to look far. In 2001, leaders from community, business, environmental, faith, labor, and advocacy organizations had formed a coalition called United Pennsylvanians (UP) to promote progressive policies in Pennsylvania. When the state’s budget went into the red and vital services were on the chopping block, UP prioritized tax reform as a way to raise adequate revenue to prevent cuts. PennPIRG joined the coalition in 2003 and soon became one of its leaders, with McConnell joining UP’s board.
As progressives, members of UP were interested in ensuring adequate revenue for public services while also promoting fairness. They proposed closing corporate tax loopholes as a way to raise revenue from those who could afford it the most.
Through educating and organizing their bases, delegation visits to legislators, and testifying before the Legislature, UP and PennPIRG convinced the governor to include a proposal to close major corporate tax loopholes in his FY 2006 budget. While more steps remain before the final budget is complete, UP’s work has already gone a long way in reframing the debate on taxes and engaging entirely new constituencies in tax fairness advocacy.
The story of United Pennsylvanians is being replicated in states throughout the nation. From Washington State to Maine, organizations that traditionally advocate for spending issues (like housing or childcare) have coalesced to successfully raise fair taxes and defeat tax cuts. The Washington Tax Fairness Coalition won passage of a state estate tax, which will raise $100 million each year. In Maine, Taxpayers for a Fair Budget Coalition defeated a disastrous property tax cap ballot initiative, which would have drained $700 million in revenue annually.
Nonprofits that care about preserving public services ignore tax policy at their peril. At stake is more than funding for local programs, but the fundamental quality of life for people who are not wealthy in America.
The importance of getting involved in revenue fights is more urgent than ever, mainly for three reasons: the need to 1) restore adequate funding for public services, 2) address structural deficits, and 3) beat back a new ominous threat from anti-tax, anti-government forces.
Adequate Public Services: From 2001 to 2004, states were confronted with the worst budget deficits since World War II. Together states had budget gaps exceeding $250 billion during these four years, resulting in severe spending cuts. Although the economy is slowly recovering from the recent recession and many state budgets are squeaking by without additional cuts, few states have restored funding of public services back to pre-recession levels. This means that the current lower funding levels for public services could become the new “norm” unless additional revenue is raised.
Structural Deficits: Many states have what’s referred to as a “structural deficit,” which simply means that the state’s revenue system (taxes, fees, etc.) does not bring in enough money to pay for its expenses. Most states have antiquated revenue systems designed during the postwar industrial economy and that are highly dependent on sales taxes on goods. But this part of the economy is shrinking as services account for higher proportions of economic activity and as purchases increase over the tax-free Internet. As a result, states will face prolonged deficits even if the economy picks up. Making matters worse, many states cut taxes (mostly progressive taxes) during the temporary economic boom of the late 1990s. Not only did this increase unfairness in state tax codes, but it turned off vital revenue spigots, thereby worsening structural deficits.
Because legislatures are politically adverse to raising taxes, to get by in the face of a deficit, they most often cut services and resort to accounting tricks and one-time solutions (i.e., borrowing from the rainy day fund). Without a permanent solution to the structural deficit—mainly by reforming the tax system so that it brings in sufficient money—nonprofit organizations will continue to expend energy year after year to preserve funding for the programs they care about.
Threat from Anti-Tax, Anti-Government Forces: The third and most menacing reason nonprofits must engage in revenue advocacy is because the right wing has launched a powerful and coordinated strategy across the nation to undermine the very essence of state government. Their goal is to fundamentally roll back the social safety nets and programs built over the last century that contribute to equality of opportunity. (See “Responding to the ‘Shrink, Shift, and Shaft’ Tax Cut Agenda,” by Chuck Collins.)
Anti-government, anti-tax advocates have introduced proposals—most of them constitutional amendments—in 18 states to straitjacket state government’s ability to ensure public welfare by preventing it from raising and spending money. The policies they are advocating for are called “TELs”—tax and expenditure limits—and the effort originated in Colorado.
The TABOR Toothed Tiger. In 1992, voters in Colorado narrowly passed the Taxpayers’ Bill of Rights (TABOR) constitutional amendment, unleashing a destructive predator on the state’s ability to raise revenue. Colorado’s TABOR is the most restrictive state fiscal limit in the country. While extremely complex, boiled down to basics it requires the state to use strict formulas, rather than expertise and judgment, to determine how much revenue the state can raise and spend from one year to the next. It also requires voters to approve all tax increases (though, notably, not tax decreases), which allows politicians to duck hard choices and undermines informed representative democracy.
Thirteen years later, TABOR’s results are in and the picture isn’t pretty. TABOR has prevented Colorado from responding to economic downturns and the critical needs of its residents. As an indication of how public services have declined, consider: Colorado ranks 47th in K–12 education funding as a share of state income; Colorado eliminated its affordable housing loans and grants program, and eliminated all state support to local and regional health agencies; and the state ranks dead last in on-time vaccination rates for kids. TABOR has also damaged Colorado’s credit rating, thus, counterproductively increasing the cost of government.
Meanwhile, in the perverse reality of anti-government, anti-tax activists, Colorado is the epitome of success. Government has shrunk, public services have been dismantled and eviscerated, and the Legislature’s hands are tied to respond. With bated breath, national anti-tax advocates, including Grover Norquist of Americans for Tax Reform, are funding and organizing TABOR initiatives across the nation. Ohio is on the front lines of this national battle, with a TABOR initiative expected on the ballot this November. Several other states are aiming to put such measures on the 2006 ballot when turnout is expected to be much higher. Those states include Missouri, Kansas, Oregon, Wisconsin, Arizona, and possibly others.
As seen in Colorado, TABOR’s consequences are severe and far-reaching. Particularly problematic is that once this policy is in place, it’s extremely difficult to reverse. If other states adopt TABOR, those who care about ensuring a basic safety net, quality infrastructure, and opportunities for all people will be set back significantly in their efforts.
Nonprofits Fighting Back. Fortunately, nonprofits in most of these states have come together to fight TABOR initiatives. Last year, a diverse coalition of nonprofits and municipal associations came together in Wiscon