Economics and Government

There were two ballot measures on the recent November election that I thought related somewhat to our class, Amendment 60 and Proposition 101. I found an article, “Election Preview: Amendments 60 and 61, Proposition 101,” that discussed what these measures would mean for our economy.

This article described Amendments 60 and 61 and Proposition 101. None of these ballot measures passed in the election. Amendment 60 would have cut property taxes, Amendment 61 would prohibit the state government from borrowing, and Proposition 101 would lower the state income tax and cut certain taxes and fees.

Amendment 60 wanted to reduce property taxes, which we learned in class are inefficient, and reduce the market value of homes. These property taxes are used for funding for Colorado school districts, which would need to replace the tax revenue funding with money from the state. Because people voted against this Amendment, it shows that there is a lower “excess burden” to Colorado consumers by taking taxes from homeowners than from some other form of taxation. It also shows that voters would not view it as efficient to take funding from other state allocations to replace funding for schools. Property tax incidence is paid by homeowners, so a majority of homeowners must be willing to take on this burden if they did not vote to decrease property taxes.

Proposition 101 would have lowered state income taxes, which would cause hourly paid workers to have an increased incentive to work more hours, since they would keep more of their hourly wages. However, it would probably not have this effect on salaried workers, since they do not make more money by working more hours. They would make a higher income if they paid less income tax, but would not have incentive to work more.

It would also make a difference in what income levels the people have who see a tax decrease. Since we learned in class that the majority of taxes are paid by the highest earning workers, the economy would see the most change if the group of the top 20% highest income earners that we looked at in class saw their income taxes decrease. For the lower levels of income earners that pay very little in taxes, their behavior will not change dramatically from the decreased tax. Both groups receive the same benefits from the government receiving the taxes, so those who will not see as much decrease in taxes they pay would vote against this Proposition.

Proposition 101 would also lower car registration fees, and telephone taxes and fees other than 911 fees. It seems strange to me that there is even a tax or fee on 911 calls. Since public safety is a public good, it should be provided for free for everyone by our government. If the government sees the 911 calls as price inelastic, they may assume that people will make a 911 call no matter what price is charged. They are assuming that people will not change their behavior and decide not to make a 911 call when they charge a price for that call. This is highly unlikely from an economic viewpoint, so there may in fact be people who choose to face danger without police help because there is a 911 fee. This seems like a government failure to me that they are charging a fee for public safety.

Source:

Roeder, Tom. “Election Preview: Amendments 60 and 61, Proposition 101.” October 2010. http://www.gazette.com/articles/proposition-106755-measures-amendments.html

# posted by Andrea Perry : 5:44 PM