Weekly Column

The People Have Spoken: SALT In Review

Law360 (November 13, 2020, 7:37 PM EST) -- From Illinois voters' rejection of a graduated income tax to Colorado's repeal of a long-standing property tax law, here are my thoughts on Election Day results of state tax questions across the nation.

My Mother and Bartender Have Views on Tax Policy

David Brunori

David Brunori is a senior director at RSM US LLP in Washington, D.C., a research professor at The George Washington University and a regular contributor to Law360 Tax Authority.

There were a lot of tax-related ballot measures decided on Nov. 3. Letting the people settle questions of tax policy is often troubling for those of us in the business. Yes, I know we are a democracy. But we can't leave important technical decisions up to the man or woman in the street. That is our job. After all, we are experienced. We have degrees. We have read Multistate Tax Commission white papers. We have seen the giants of state tax policy speak at Zoom conferences. We are special. Just ask us.

State tax policy is too sophisticated and too complicated to be determined by hoi polloi. You need to worry about the effects on the economy, industry sectors, conformity, interstate competition and lobbyists. I have tried to talk worldwide combined reporting with my favorite bartender. He seemed more interested in talking about the Philadelphia Eagles. He also told me he would cut me off if I persisted.

Years ago, people in California were asked to decide whether the state should adopt a single-sales tax apportionment formula. I am pretty sure that 99% of the people who voted to revise the state's apportionment formula had zero idea of what they were voting for. I know a lot of state tax professionals who do not really understand apportionment. My mother is a retired hairdresser. She is 86. I love her. But I don't want her making decisions about tax policy that we in the business are trained for and, more important, paid to make. My mother and my bartender should stay in their lanes.

Lest you think I am serious with this elitist view of state tax policy, I am not. This is the greatest democracy that ever was, and if the people want to decide tax policy questions, so be it. Besides, it's not as if your average state legislator understands this stuff any better. Most state tax issues on ballots are actually pretty simple to understand. They will increase or decrease tax burdens. They will tax certain products or not. You don't really need a Ph.D. in economics to figure out if you think raising property taxes is a good idea. I can assure you that both my mother and bartender have a pretty good idea of the effects of taxes on small business.

More important, taxation – in case you didn't know – entails taking people's money. I think putting to vote the question of how much the government is going to take is fair game. Special interests who want higher or lower tax burdens often do not like direct democracy. It is much easier to influence a small majority of lawmakers than it is to make your case to the public. Most lawmakers I know really don't like the people deciding things. A state senator once said to me that voters were "not smart enough to decide whether their taxes should be raised."  That mindset is precisely why direct democracy is a good thing. People are smart. They understand that they will have to live with their choices. But it is their choices they will be living with. That is good.


Illinois is a very blue state. Joe Biden won there overwhelmingly. The state does not need to prove its liberal bona fides. But when it comes to taxes, the people are not as liberal as you may think. The people of Illinois decidedly defeated Amendment 1, the measure that would have allowed a graduated income tax system. It wasn't close; about 55% percent of the voters said no.

Are the people of Illinois dumb? I know some academics who think so. A yes vote meant higher taxes on the wealthy and corporations. But polls showed that the people believed that eventually everyone would pay more. They also believed that the tax hikes would hurt the economy. Perhaps the people are smart enough to know that hurting the economy in the middle of a pandemic is not good.

Illinois is a mess financially. Gov. J.B. Pritzker, who championed Amendment 1, blamed the people for the state's problems. He has also promised painful budget cuts as a result. Perhaps the people understood that budget cuts were necessary when they rejected the tax increase.


For the uninitiated, California is also a blue state. Republicans don't even campaign there anymore. Yet the voters said no to higher property taxes. And those higher property taxes would have been imposed on commercial property – not on their homes. The rejection of Proposition 15 is telling. People continue to support Proposition 13 more than 40 years after its passage. People continue to dislike the property tax. People distrust promises such as that the tax hikes would be limited to commercial property. They have been led down many slippery slopes by the ruling class.

Like many public finance people, I happen to like the property tax. I think it is the ideal way of paying for local government. Limiting the tax, as Prop 13 did, shifts the burden of paying for government to the state. I think that is awful, but they don't let Virginians vote in California. The point is that people in California do not like the property tax. Last week's vote proves that.


Colorado takes its public tax policymaking seriously. Voters repealed the Gallagher Amendment, a constitutional provision that essentially limits taxation on residential property. The law, enacted in 1982, required that residential property make up no more than 45% of the state's property tax base. It was a highly complicated system.

Voters approved the repealing Amendment B by a striking 58% to 42% or thereabouts. I do not think that the people of Colorado repealed the Gallagher Amendment because of a sudden love of the property tax. The decline of commercial property values because of the coronavirus pandemic was going to force the state to adjust the property ratios. The result would likely have been a reduction in property tax revenue for schools. And raising tax rates in Colorado is difficult because of the state constitution's Taxpayer Bill of Rights. The Gallagher Amendment, though, always made doing business in the state more expensive because it shifted tax burdens to commercial property.

While Coloradans were willing to loosen limits on the property tax, voters also overwhelmingly passed Proposition 116. That measure cuts the state's flat income tax from 4.63% to 4.55%. I would trade higher property taxes for lower income taxes any day. Taxes on income are far more detrimental to the economy than those on property. Maybe the people know what they are talking about. Cutting income taxes was also a rejection of the tiresome argument – tiresome to me, anyway – that some people are not paying their fair share.

Finally, by about a resounding 62% to 38%, Colorado voters approved higher excise taxes on all tobacco products. I think that is horrible tax policy. You ask a bunch of nonsmoking health nuts whether we should raise cigarette taxes, and the answer is yes. But I am surprised that the folks choose to raise the tax on vaping and electronic cigarettes. Again, though, I don't get to vote.


Unlike folks in California, Colorado and Illinois, voters in Arizona decided to raise broad-based taxes. They approved Proposition 208, which will impose a whopping 3.5% surtax on income over $250,000 for individuals. That is a big giant tax increase. I also think it is a big giant mistake.

The revenue, expected to be nearly $1 billion a year, will be earmarked for education and teachers' pay. I am all for paying teachers. But why should only the wealthy pay for them? Are teachers not important enough that everyone should have an oar in the water?  Higher income taxes, particularly on small business, will hurt the economy in the long run and slow the recovery in the short run. But that is the beauty of this democracy of ours. The people get to choose. Of course, some of those rich folks may choose, too  – to move to Texas or Nevada.

Even in the City

Folks in the Portland, Oregon, area and San Francisco got to decide a bunch of tax policy issues. In Multnomah County, where Portland is, voters approved an income tax on the so-called rich to fund universal preschool. It wasn't close, a reported 64% to 36%. The measure places a 1.5%percent tax on all income over $125,000 for single filers and only $200,000 for joint filers. But the rate will increase to as much as 3.8% after 2026. This is on top of Oregon's state income tax and, of course, the federal income tax. The county will take the money and pay for universal "free" preschool.

Like all Americans, I love preschool, kids, parents etc. But this new tax is daft. Large-scale redistribution does not work for local governments. It never has. It never will. Eventually, people subject to the tax will move outside the county lines. I think in Portland there is a desire among many voters to stick it to the man, but it is hard to stick it to the man who moves out of the county.

Voters did reject a countywide payroll tax of 0.75% on employers. That money was going to fund transportation projects. The business community convinced voters that the tax would cost the county jobs, an argument that resonated during the pandemic.

Voters in San Francisco decided a slew of tax measures. They voted to repeal the city payroll tax, good; increase the gross receipts tax, bad; provide tax relief to businesses hurt by the pandemic, good; and impose a new surtax on so-called white-collar businesses, weirdly bad. Voters also opted to double the city's real estate transfer tax from a high 2.75% to an astronomical 5.5%. The tax will be 6% on transactions over $25 million.

And San Fran voters approved Proposition L, which will impose a new tax on executive compensation. If the ratio between a business' compensation for its highest-paid executives and that of its median employees is greater than 100 to 1 and less than 200 to 1, an additional gross receipts tax of 0.1% is imposed. If the ratio is greater than 200 to 1 but less than 300 to 1, the tax is 0.2% of taxable gross receipts. If the ratio is 600 to 1, the tax is 0.6%.

The tax on companies that pay their executives too much is counter to good tax policy. The government should not be determining compensation – the market should. And again, local governments cannot effectively or efficiently redistribute wealth. It will not take long for businesses to begin to wonder why they are operating in that city.

But the electoral decisions in Portland and San Francisco are the decisions of the people who live there. I would not have made those selections, but I do not live in either city.

Finally, Personal Freedom Wins

I add that the 2020 elections were good for individual liberty. Citizens in four states voted to legalize marijuana, and the states were diverse: New Jersey, Arizona, Montana and South Dakota. I trust the people on this question far more than legislators. Some folks are motivated to legalize pot because people smoke pot now and the world hasn't ended. Some are motivated by the expected tax revenue.

Voters in two states – Nebraska and Maryland – voted to expand gambling. I am not a big fan of relying on gambling to pay the bills. But whether a person wants to spend his or her money on a game of chance is his or her business – not mine and certainly not the state's.

Overall, I think the people did a pretty good job making tax policy this Election Day.

This article is part of a weekly column publishing in Monday's newsletters.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

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