Recession Could Sway Voters On State Tax Referenda

WASHINGTON --The success or failure of tax-related ballot initiatives in 23 states will be influenced by voters' attitudes about the struggling economy.

Among the raft of ballot measures: Massachusetts voters will decide whether to scrap the state's income tax, while Colorado voters consider whether to roll back spending limits that were put in place in 1992 as part of a Taxpayer Bill of Rights.

The Massachusetts question is one of several tax-cutting initiatives, all of which made the ballot before the full impact of the financial crisis became clear this year, with its resulting squeeze on state revenues.

Opponents of the tax-cutting measures are doing their best to remind voters of those additional budget pressures.

"Here we are in a fiscal crisis, and we're going to remove $12.5 billion from the state budget," said Michael J. Widmer, president of the Massachusetts Taxpayers Foundation, in a video statement on the Boston Globe's Web site. The Massachusetts measure would repeal the income tax, which accounts for 40% of the state's revenues, starting in 2010.

On the other hand, voters who are feeling a budgetary pinch of their own may be more likely to vote for lower taxes in this bleak economic environment.

"I don't know if the recession is changing minds," said Joseph Henchman, tax counsel at the Tax Foundation. "Some people are probably more hesitant to cut taxes, and government officials are certainly driving that point home."

"At the same time, people want a little more money in their pockets right now," he added.

Jennie Drage Bowser of the National Conference of State Legislatures said her research didn't indicate that voters generally were any more or less likely to approve tax-cutting ballot measures in weak economic times.

However, she said that between 1992 and the last election, voters appeared less likely to vote for tax-increasing referendums when economic anxiety was up.

Only in 1992, 2002 and 2006 did voters approve less than 35% of tax-increasing state-wide ballot measures, Bowser said in an interview.

In North Dakota, voters will decide whether to cut personal income tax rates in half, and cut the tax on corporations to 5.5% from 6.5%.

The state is in the unique position of enjoying a structural budget surplus, as income tax revenues and taxes from oil and gas exploration are on the rise, according to Henchman.

In Oregon, a ballot question would allow Oregonians to deduct a larger share of federal income taxes paid on their state taxes. Current law caps deductions for federal income taxes at $5,600.

The Oregon initiative, if successful, would eliminate that cap. The proposal would reduce state revenues by $1.2 billion per year when fully implemented, according to NCSL.

Meanwhile, Colorado may be headed in the direction of higher taxes if any of three ballot initiatives win the day.

The first would raise the state sales tax from 2.9% to 3.1%. The second would raise $1.1 billion over four years by increasing fees on oil and gas production.

Finally, a third measure would end taxpayer rebates for when state revenues exceed spending caps that are pegged to population growth. The rebates were created by Colorado's landmark 1992 Taxpayer Bill of Rights.

Colorado already voted to suspend those rebates through 2010, but the measure on Tuesday's ballot would permanently eliminate them. It would also exempt education programs from the spending caps.

If there is a trend in this year's crop of ballot initiatives, it is in clean energy-related questions, said Bowser. Florida has a ballot measure to exempt from property assessments renewable energy improvements, like installing a windmill.

-By Martin Vaughan, Dow Jones Newswires; 202-862-9244; martin.vaughan@dowjones.com