The evolution of tax policy ideas in Colorado

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The evolution of tax policy ideas in Colorado
Kennedy, Christopher Louis
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vii, 174 leaves : ; 28 cm


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Since 1951 ( fast )
Tax and expenditure limitations -- Colorado ( lcsh )
Taxation -- Law and legislation -- Colorado ( lcsh )
Politics and government ( fast )
Tax and expenditure limitations ( fast )
Taxation -- Law and legislation ( fast )
Politics and government -- Colorado -- 1951- ( lcsh )
Colorado ( fast )
bibliography ( marcgt )
theses ( marcgt )
non-fiction ( marcgt )


Includes bibliographical references (leaves 167-174).
General Note:
Department of Political Science
Statement of Responsibility:
by Christopher Louis Kennedy.

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Source Institution:
University of Colorado Denver
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Auraria Library
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LD1193.L64 2010m K46 ( lcc )

Full Text

Christopher Louis Kennedy
B.S., University of Colorado Boulder, 2002
A thesis submitted to the
University of Colorado Denver
in partial fulfillment
of the requirements for the degree of
Master of Arts
Political Science

This thesis for the Master of Arts
degree by
Christopher Louis Kennedy
has been approved by
iz-h L
Michael Cummings

Kennedy, Christopher Louis (MA, Political Science)
The Evolution of Tax Policy Ideas in Colorado
Thesis directed by Associate Professor Tony Robinson
In 1992, Colorado voters passed an initiative known as the Taxpayers Bill of Rights,
or TABOR, that put in place new limitations on taxation and spending by state and
local governments. In the years since its passage, TABOR has had a significant effect,
not only on policy decisions made by the legislature, but also on the perceptions held
by Coloradans about the role of government. To explain the passage of TABOR and
the ensuing stability of the TABOR paradigm, I draw on insights from historical
institutionalism and policy analysis to argue that historical contingencies played a
major role in creating a window of opportunity for policy entrepreneur Douglas Bruce
to advance an idea to shrink government. Once passed into law, TABOR began to
reinforce neoliberal perceptions about tax policy and government, and new
institutions developed that came to entrench TABOR as a lasting Colorado institution.
This abstract accurately represents the content of the candidates thesis. I recommend
its publication.
Tony Robinson

In ancient times there lived a king whose tax-collectors could not wring from all his
subjects gold enough to make the royal way less rough...
So the tax-collectors in a row appeared before the throne to pray their master to
devise some way to swell the revenue. "So great," said they, "are the demands of
"O King of Men," the spokesman said, "If you'll impose upon each head a tax, the
augmented revenue we'll cheerfully divide with you."
Ambrose Bierce
The Devils Dictionary, 1911
[T]he ideas of economists and political philosophers, both when they are right and
when they are wrong, are more powerful than is commonly understood. Indeed the
world is ruled by little else. Practical men, who believe themselves to be quite exempt
from any intellectual influences, are usually slaves of some defunct economist.
Madmen in authority, who hear voices in the air, are distilling their frenzy from some
academic scribbler of a few years back.
John Maynard Keynes
The General Theory of Employment, Interest, and Money, 1936

1. INTRODUCTION...............................................1
Path Dependency and the Contingencies of History...4
Ideas and Interests.....................................8
Summary.............................................. 17
2. THE PATH TO 1992..........................................20
The Dawn of Modem Tax Policy...........................24
Depression, War, and the Embedding of Liberalism...34
Using Tax Policy for Social Goals......................46
CALIFORNIA LEADS THE CHARGE...............................50
Revamped Ideas Come to Define an Era...................51
Direct Democracy.......................................57
The Tax Revolt in California......................... 59
Colorados Attempts to Preempt Revolution in the 1980s.73
The Reagan Revolution..................................82
4. COLORADO, 1992: A WINDOW OF OPPORTUNITY...................94

Proto-TABOR: Early Attempts at Limiting Taxes
5. 1993-2010: THE ERA OF TABOR..........................119
TABOR and Colorados Economy......................122
TABORs Self-Reinforcement Mechanism..............130
6. 2010 AND BEYOND......................................146
The 2010 Budget Debate and Election...............146
Summary of Findings...............................151
Looking Forward...................................159
INTERVIEWS .................................................172

1 Amendment titles for Colorados four TELs, 1986-1992..............108

Scarcely one hundred years ago, the first permanent income tax was instituted
in the US in 1913. Prior to that time, a scattered array of excise taxes comprised the
tax base of a federal government with very limited revenue needs, except in times of
war. As the twentieth century wore on, however, the needs of the federal government
expanded significantly, first through US involvement in several major foreign wars,
and second through the expansion of social services and infrastructure projects. In
developing tax policies to meet these revenue needs, the federal government had a
limited range of choices because historical contingencies and earlier ideas had
become institutionalized through rules and procedures, entrenched interests,
established organizations, and reinforced public views of government.
Over the same period, tax policies of the individual states faced similar
struggles with modernization. Keeping up with the needs for new public services,
state governments developed new tax systems to meet increasing revenue needs.
Additionally, the advent of direct democracy in many states allowed for citizen-
initiated changes to tax policies that would come to have major impacts on the lives
of citizens.

In Colorado, tax policy decisions in recent years have been similarly
constrained by the choices of previous generations. Through a very unique set of
circumstances and the rise of a certain set of ideas, Colorado voters in 1992 approved
a new constitutional amendment, Amendment 1, commonly known as the Taxpayers
Bill of Rights or TABOR. With the passage of TABOR, Colorado moved into a new
paradigm of limited state government.
Since Colorados passage of TABOR in 1992, no other state in the US has
implemented such a rigorous restriction on taxes and expenditures. While a handful
of changes have been made to Colorados tax law since 1992, the state government
continues to have limited choices in solving both short term problems, including how
to balance the budget during a recession, and long term problems, such as long term
fiscal sustainability. In the context of the current recession, the state legislature,
unable to significantly increase revenues without a vote of the people, will be
required to make substantial reductions in expenditures in order to balance the
predicted $1.1 billion dollar shortfall in fiscal year 2011-12 (Ritter 2010).1 This range
of choices clearly omits one option that is no longer available: increasing tax rates.
The legislature has been able to increase some new revenues through new fees and by
eliminating tax exemptions, but an outright increase in tax rates is specifically
1 Governor Ritters balanced budget proposal released on November 1, 2010 includes cuts to state
personnel, K-12 education, the Child Health Plan Plus, and Medicaid. While no additional cuts have
been proposed for higher education, federal support will be reduced, and college tuition rates are
expected to rise by 9% (Colorado Fiscal Policy Institute 2010).

prohibited by TABOR. Clearly, the political decisions of previous years have placed
powerful institutional constraints on Colorados fiscal policy choices.
Federal policies also substantially constrain Colorados options for dealing
with budget shortfalls, particularly with regards to federally mandated services such
as Medicaid that require a state contribution in order to receive matching federal
funds. New policies such as the recently passed health insurance reform and the
proposed climate change legislation include additional mandates on the states.
Furthermore, federal tax policy itself affects income distribution and private
investment, and future efforts to control the substantial budget deficit may very well
involve the elimination of funding for services required to be provided by the states.
These significant institutional constraints have arisen over the last few
decades from legislative actions, citizens initiatives, and court cases. In addition,
peoples choices are limited by their own understanding of the problems they face,
the potential solutions that may exist, and the political possibilities. These perceptions
have been shaped over the years by political campaigns, media coverage, and the
increasing cynicism of the electorate. The choices made in the past have powerfully
constrained our current choices, both through legal requirements and through
limitations on politically possible ideas for problem solutions. Using an historical
institutionalist approach, I will show that the endurance of TABOR can be explained
through path dependency, and I will consider the circumstances that might allow a
new set of ideas to rise and lead to another paradigm shift.

Path Dependency and the Contingencies of History
Historical institutionalists go well beyond saying that history matters to
create a new approach to political science that goes beyond some of the limitations of
other methods. This approach utilizes thick historical analysis and process tracing to
show how institutions are interconnected with the ideas and material interests of
groups and individuals as well as specific contingent events. Furthermore, this
approach can be used to clearly show the causes of institutional stability and change,
both of which are dependent on the path these institutions have followed through
history. This path dependency is a key element of historical institutionalism and
enables us to closely examine the past decisions and events that created options for
future changes while eliminating others.
Steinmo points out that the conclusions of historical institutionalists can
sometimes seem like common sense, but they stand in sharp contrast to the
conclusions of other political scientists (2008). Pierson argues that path dependency
provides a plausible counter to functionalist explanations in political science, which
often go unchallenged (2000, p. 263) and suggests the large dangers in any
assumption that an institution arose because it serves some particularly useful
function (p. 264). In some of the other approaches of political science, historical
context is not taken seriously. In quantitative behavioral approaches, for example, the
study of politics is broken down into constituent variables that could be measured,
examined and analyzed independently (p. 153). In rational choice theories, actors are

assumed to have static and largely material interests that drive their behavior patterns,
and all political actions are traced to the rational pursuit of self interest,
independent of historical context. In both of these approaches, cases are often thought
to be interchangeable between locations and time periods, as long as the specific
variables or the interests of the actors remain the same.
Using the behaviorist lens, the passage of TABOR might be explained by
choosing several factors present in Colorado at the time and comparing them to other
states and to other times in history. Lets say we choose three independent variables:
state income tax rates, public trust in government, and the initiative process. Looking
at each independently, none adequately explains the success of TABOR. Colorados
income taxes were not particularly high compared to other states (Cronin & Loevy
1993; Smith 1996), and while it is possible that Colorados voters were more
frustrated with government than voters in other states or that Colorados initiative
process was particularly conducive to the passage of major tax law changes, no
combination of these variables can explain why TABOR passed in 1992 while similar
initiatives failed in both 1988 and 1990. Only by looking at the interaction of these
variables with contingent historical events such as the other items on the ballot in
1992 and specific and evolving ideas advanced by powerful actors at the time can this
change be explained. Indeed, many current and former Colorado legislators credit the

final passage of TABOR with the crowded ballot in 1992 and the persistence of its
lead proponent, Douglas Bruce.
On the other hand, using the rational choice lens, the passage of TABOR in
1992 could be viewed as a rational decision by the voters of Colorado about their own
short and long term best interests. However, for this to be true, an overwhelming
majority of voters would have to have a comprehensive understanding of the details
and impacts of the amendment. For a voter that had not read the language of the
amendment, or the arguments for and against it, the title that appeared on the ballot
only revealed a small fraction of its true impacts, as will be explained in Chapter 4. In
fact, it is very unlikely that most voters had a clear understanding of what exactly
TABOR would actually do, in terms of affecting their material self interests. Instead
of pointing to the calculated interests of the voters as the reason for TABORs
passage, therefore, one must understand how voters perceive their own interests, and
how their ideas and interests interact within the context of other historical events to
shape their voting behavior (Blyth 2002).
So why did TABOR pass in Colorado in 1992, while no other states adopted
such a rigorous tax limitation? Why did TABOR take the form it did? To what degree
has TABOR endured since its initial passage? By taking into account many different 2
2 Specific evidence from my interviews with current and former state legislators will be presented later
in this paper.

interconnected variables including the underlying structural conditions,3 the interests
and ideas of historically specific actors, and the effects of contingent historical events,
much of the puzzle can be solved. Path dependency is better suited to grappling with
the complex influence of these multiple variables than narrow behavioral methods or
rational choice theories, and can thus more clearly explain how new ideas must find a
way to fit within existing institutional frameworks. In other words, the structural
conditions and the interests of actors may have significantly increased the likelihood
that something was going to change, but the final form of the change was only
possible because of the particular institutional arrangement in Colorado, the historical
contingencies of the moment, and the specific implications of the ideas themselves.
It may indeed seem intuitive that TABOR passed because of a combination of
factors such as voter anger, Colorados unique initiative system, the influence of
Douglas Bruces persistence, the power of anti-government ideas, and a crowded
ballot. However, the historical institutionalist approach is distinct from other
dominant theories in political science precisely because it is capable of assembling
these multiple variables into a cohesive causal argument and thus helps explain far
more about the complex history of Colorados TABOR than the behavioral or rational
choice approaches.
3 Structural conditions can include a wide variety of economic factors such as the state of the economy
and the distribution of income.

In the following section I will introduce the relevant terminology and define
the causal mechanisms that will be used to explain the cycles of stability and change
that surround the passage and endurance of TABOR.
Ideas and Interests: Explaining Cycles of
Institutional Stability and Change
In the years since 1992, TABOR has been much more than simply a law to
limit taxes: it has become an institution. Institutions can be organizations, rules and
procedures, norms and values, or as Skocpol puts it, institutions are sets of
relationships that persist (1995, p. 105). Steinmo narrows this definition slightly,
stating that institutions are rules that structure behavior (2008, p. 162). These rules
can be formal, such as procedures for getting an initiative on the ballot, or informal,
such as patterns of behavior that include working during the day and sleeping at
night. Regardless, we generally adjust our behavior to fit legal expectations or social
norms. A fundamental trait of institutions is their tendency to endure by structuring
behavior in a self-reinforcing way. On the other hand, institutions do change over
time, but because of the vast array of influential factors the changes are more difficult
to predict. One of the major challenges of the new scholarship on institutions is to
explain why institutions change when they do, and what forces influence the
formation of the new institutions that replace the old.

Explaining Stability: Positive Feedback
and Increasing Returns
The development of institutional theory has incorporated a wide spectrum of
explanations for the tendency towards stability, and has come to include three major
strains of institutionalism. First, rational choice institutionalists claim that institutions
frame the strategic behavior of individuals (Steinmo 2008). For example, a specific
set of tax policies provides a framework of rules within which businesses make
decisions about how to maximize profits and minimize losses. Second, sociological
institutionalists focus more on the tendencies of individuals or groups to follow a
logic of appropriateness based on how they see the world. While there may not be
specific rules requiring a business to provide social benefits to their employees, it is
often thought that they should do so, and thus the businesses respond to a norm.4
Finally, historical institutionalists incorporate elements of both schools by theorizing
that actors can behave in either or both of these ways depending on context, both
following rules and abiding by norms. Thus, the mechanisms of path dependency
explained below include elements of both structural (materialist) and interpretive
(ideational) logic.5 When the two come into conflict, Steinmo argues that the history
must be reviewed to reveal which had the greater influence in a particular case.
4 Often, businesses also see the provision of such perks as beneficial to increasing productivity and
thus profits. As is seen in historical institutionalism, the rules and the norms are rarely mutually
5 The extension of historical institutionalism to include ideational factors has been the subject of
discussion in the development of the new institutionalisms (Hay 2006). In many ways, the synthesis

Looking at the structural logic of path dependency, Pierson explains how
policies on the books have an effect on both the resources and the incentives of
groups (1993). If one group is favored by a particular law, the group might in turn
have more resources to commit to further advocacy for the continuation of the
favorable policies. For example, if an industry receives a tax break, part of the
industrys increase in profits can be spent on hiring lobbyists to fight to maintain or
increase the tax breaks, or sponsoring televised ad campaigns for candidates that
support these policies. This is a simple example of path dependency in the material
sense. Institutional changes can both positively and negatively affect groups, but the
effects are not randomgroups affected positively at one point in a policy path will
tend to be even more favored further down the path. Specifically, Pierson describes
this kind of path dependency as a positive feedback effect by explaining how social
processes are subject to increasing returns (2000).
Drawing on a study by Arthur of increasing returns in technological
investment, Pierson lays out four elements of social structures that also lead to
increasing returns: high fixed costs, learning effects, coordination effects, and
adaptive expectations (ibid.). First, high fixed costs represent early capital
of the theories of Steinmo, Blyth, Pierson, Campbell, and Kingdon that is used in the following
chapters could be classified as constructivist institutionalism rather than an extension of historical
institutionalism. Hay cites the work of Kuhn, Hall, and Blyth in transcending this frontier and points
out that, Whether constructivist institutionalism is seen as a variant, further development, or rejection
of historical institutionalism depends crucially on what historical institutionalism is taken to imply
ontologically (p. 62). For the purposes of this paper, I will not get lost in the mire of this debate and
will proceed under the assumption that the inclusion of ideational factors is but a further development
of historical institutionalism.

investments that later lead to economies of scale. Second, learning effects represent
the increased efficiency through the mastery of a trade. Third, coordination effects
represent the increased market access that becomes possible through shared
infrastructure investments. Finally, adaptive expectations represent investments made
on technologies that appear likely to succeed, which through these increased
investments become even more likely to succeed in a sort of self-fulfilling prophecy.
In all four cases, parallels exists whereby social structures exhibit these same
path dependent characteristics. Another important element institutional stability is
conceptualized using veto points. In any case where collective action is required to
change a policy, any number of actors may be in a position to withdraw their support.
Often in legislation, the veto players are legislators from districts with special
concerns that must be addressed before they will support a new bill.
In Chapter 5,1 will show how the passage of TABOR set in motion self-
reinforcing processes by allowing for the creation of new veto points and by changing
group incentives and potential resources in a way that catalyzed a positive feedback
loop that reinforced the endurance of TABOR.
In addition to these structural mechanisms of path dependency, ideational or
interpretive mechanisms create their own kinds of institutional stability. In general,
historical institutionalists do not so much advocate a shift from materialism to
idealism as they seek to understand how material interests and ideas interact. One
major manifestation of this logic is the evaluation of the impact of ideas on the ways

actors view their own material interests (Blyth 2002; Campbell 2002). In particular,
Blyth is concerned about cases where actors are unsure as to what their interests
actually are, let alone how to realize them (p. 9). In these cases, actors benefit from a
simplifying ideology, and economic ideas can provide interpretive frameworks
through which the highly complex world becomes understandable, thus allowing
actors to make decisions that benefit their own interests. Economic recessions are
often capable of shaking confidence in existing economic theories, and thus the rise
of new ideas can restore confidence by identifying the problems with the old way and
laying out new courses of action.
Examining the ways that different kinds of ideas influence policy making,
Campbell creates a five-part typology of political ideas. First are cognitive paradigms
and world views. Campbell explains that these cognitive paradigms are taken-for-
granted descriptions and theoretical analyses that specify cause and effect
relationships, that reside in the background of policy debates and that limit the range
of alternatives policy makers are likely to perceive as useful (2002, p. 22). Thus,
when problems arise, policy makers tend to rely on preexisting frameworks, selecting
ideas from a limited menu of tried and tested policy ideas. For example, certain
political actors will initially respond to increased unemployment by returning to
Keynesian economics and encouraging increased government spending to stimulate
demand. Others will refer to supply-side theory and advocate tax cuts to encourage
increased business reinvestment. In both cases, the existing cognitive paradigms

provide a set of solutions that are initially perceived to be the most reliable. As Blyth
explains, it is not until these attempts have failed that new ideas can gain traction.
Campbells second type of ideas is normative frameworks. These frameworks
represent a logic of moral or social appropriateness, and they can be so influential that
they override the self-interests of policy makers. For example, many policy makers
respond to increased unemployment by extending safety net benefits such
unemployment insurance based on their understanding that it is just the right thing to
do. Another example is the idea that you do not raise taxes during a recession,
which was commonly expressed by Republicans during Colorados 2010 budget
debate. This idea has gone beyond a cognitive paradigm about the most effective
policies to become a moral issue, wherein raising taxes is seen as immoral. Third,
ideas about conformance to world culture help explain policy similarities between
countries.6 Campbells fourth type of ideas is frames. He explains that frames are
foreground ideas that come to represent one interpretation of the meaning of a policy
idea, and they are often used strategically by actors advancing certain policy
objectives. In the case of TABOR, one of the dominant frames in 1992 was exhibited
in the exclusive focus on the idea that people would be able to vote on their own
taxes, even while the amendment contained a number of other provisions. Finally,
programmatic ideas represent perceptions about the intended applications of existing
policy. For example, many feel that TABOR is meant to include a restriction on fee
6 Campbell is careful to point out that scholars have struggled to effectively prove cause in the case of
world culture, which will not play a major part in the remainder of this paper.

increases in addition to tax increases, even while the language of the amendment does
not directly restrict fees. Many of these types of ideas overlap, can be applied to
different situations, and are used to explain causation in different scenarios.
Through these various types, the influence of ideas can be used to explain
institutional stability through path dependency and veto points. The different types of
ideas guide policy makers towards solutions that do not deviate excessively from
previously used methods or commonly accepted appropriate ideas. Similarly, such
ideas constrain the range of actions available to social groups and influence the voting
behavior of mass publics. The breakdown of cognitive paradigms, normative
frameworks, and programmatic ideas that can come from crises and the gradual
failures of ideas opens the door for new interpretations that guide institutional change.
Explaining Change: Windows of Opportunity
for New Ideas
Much has been written about the nature of institutional stability, but many of
the previous theories of institutional change have relied excessively on exogenous
shocks (Blyth, 2002). In traditional historical institutionalist approaches, scholars
relied on the concept of critical junctures to explain why institutions change. A
critical juncture is an unexpected event, such as an economic depression or a terrorist
attack, that sets in motion processes of change. In the last few decades, new theories

have emerged to account for major changes that are spawned by internal factors
instead of shocks from outside the system.
Kingdons work on policy analysis, first published in 1984, has been a major
step forward in this pursuit (2011). Kingdon argues that opportunities for change only
come about when there is a convergence of three streams: problem, policy, and
politics. Kingdon calls this opportunity a policy window, which can be used as a
substitute for the concept of the critical juncture. Both policy windows and critical
junctures represent opportunities for change in which actors must make decisions on
how to solve emergent problems. The policy window opens when there is sufficient
agreement on the nature of a problem and the corresponding policy solution, and
when the politics fit with the contingencies of history. This idea is very broad, but can
be used as a framework to outline the roles played by various actors to bring about
change within existing institutional structures. Kingdon puts great emphasis on the
role of the policy entrepreneur, an actor with the access and persistence to bring
together these three streams at just the right moment.
Not all moments in history are ripe for major political change, but certain
kinds of shocks, particularly economic crises, can rapidly lead to the perception that
the previous ideas have failed. However, policy windows can also open without major
shocks. Policies enacted years or decades earlier continue to affect the world,
particularly through the economy. When these gradual impacts result in consequences
for the population as a whole, or when they tend to favor certain groups over others,

major segments of the population might begin to see the policies as failing.
Furthermore, these gradual effects can compound into major crises, thus accelerating
the general disaffection with the existing policies.
Blyth picks up where Kingdon leaves off by breaking down the specific role
played by ideas in transforming institutions. Blyth argues that this perception of failed
policies increases the uncertainty of actors as to the nature of their own interests,
since their previous cognitive paradigms do not effectively explain the causes of the
crisis nor do they lay out clear solutions (2002). This uncertainty creates a window of
opportunity for new ideas to rise to prominence. Blyth goes on to outline five steps in
a sequence that is generally followed as ideas come to catalyze institutional change.
First, new ideas reduce actors uncertainty about their own material interests. Second,
these ideas enable new forms of collective action. Third, actors use their new ideas as
weapons with which they delegitimize the old institutions. These actors can include
the policy entrepreneurs described by Kingdon. In Blyths fourth step, the new ideas
frame the boundaries of new institutions. Finally, these ideas enable a new
institutional stability. Integrating the theories of Kingdon about the role of policy
entrepreneurs and the theories of Blyth about the role of ideas, a cohesive case can be
made to explain why institutions change.
After the transformation is complete, the new institutional stability begins to
exhibit the kinds of path-dependent causal mechanisms outlined previously. The
cycle of institutional stability and change is guided by these material and ideational

mechanisms at different stages, and is subject to the constraints of previous
institutions and ideas. In following chapters, these kinds of causal mechanisms will be
used to explain the passage of TABOR in 1992 and the subsequent stability of the
TABOR policy regime.
Now that the terminology and methodological foundation of this thesis have
been established, I can restate my hypothesis more concisely. In the decades
preceding 1992 in Colorado, the perceived unfairness of the tax system and the
perceived failure of the existing economic ideas led to a widespread uncertainty
among voters regarding their own interests. In 1992, historical contingencies opened
up a policy window for the anti-tax movement that was skillfully exploited by a
policy entrepreneur, Douglas Bruce. Bruce had been persuaded by the idea that big
government was the source of the problems with the economy, and he recognized
that a similar sentiment had gained traction with much of the population of Colorado.
He further activated this idea within the electorate by crafting a very specific message
to advance TABOR, a problem solution in line with his own ideas about the
problems, thus linking the problem and policy streams. Finally, in 1992, Bruce was
able to integrate the politics stream by taking advantage of the contingencies of the
moment, and in doing so, he achieved the passage of his policy idea: the Taxpayers
Bill of Rights. Once passed, the new institution of TABOR began to exhibit

symptoms of institutional stability as other state institutions became committed to the
new tax policy regime because of the influence of high start-up costs, learning effects,
coordination effects, and adaptive expectations on actors that benefitted, both
materially and ideologically, from TABORs survival.
The remainder of this thesis will explore the passage and endurance of
TABOR in detail. To show how these events came to be, I will draw on the review of
historical documents as well as the insights gained from twenty three interviews
conducted with current and former state legislators.
In Chapter 2,1 will review the developments in tax policy over the last
century in the US and Colorado leading up to the end of the period of institutional
stability following World War II. In Chapter 3,1 will examine developments in
California and at the federal level that challenged the ideas of this stable period, and I
will look at the early manifestations of this sea change in Colorado. In Chapter 4,1
will show how powerful ideas navigated through the existing institutional stability
and were then united with historical contingencies by a policy entrepreneur to create a
paradigm shift in Colorado. In Chapter 5,1 will examine the institutional stability in
Colorado since the passage of TABOR in 1992. Finally, in Chapters 6,1 will look at
the current recession and the political dynamics in both the US and in Colorado, and I
will look for signals that a new policy window may soon be opened in Colorado.
This review of the changes in Colorados tax policy and the continuing
sources of endurance for a policy institution like TABOR is an important step

towards more accurately gauging possible solutions to current problems, not least of
which is Colorados highly partisan atmosphere. Since 1992, the causes and effects of
TABOR have been described differently by proponents and opponents, both seeking
to advance their own policy objectives by framing TABOR in a certain way. Both
arguments contain elements of truth, but objectivity has been impossible while policy
makers and voters are trapped in such a ruthless political environment. By
reexamining our understandings of the events before and after 1992, perhaps policy
makers and voters will be able to get over the partisan hurdles and find a new kind of

In order to demonstrate the application of the theories discussed in Chapter 1,
it is useful to review the major changes in tax policy over the last century. In addition,
it is only by examining the institutions, actors, ideas, interests, and historical events
that guided the cycles of stability and change that we can understand the full range of
dynamics in play at the time of the passage of TABOR. In this chapter, I will compare
and contrast the works of major scholars that have used an historical institutionalist
approach to explain changes in tax policy during the 20th century.
Steinmo points out at the outset that his work understands history as a non-
linear, adaptive process, arguing that History evolves and changes in unpredictable
ways according to the way human agents themselves adapt and change to the
environment which they themselves have helped construct (2003, p. 207). By
examining the institutions that structure human behavior, we can see how the
problems, ideas, and processes open to the door to specific, though not predictable,
changes to those very institutions.7 Since the end of the 19th century, there have been
three major paradigm shifts in US tax policy, first with the advent of the national
7 It is interesting to note that the unpredictable outcomes defy the notion of progress in which changes
are thought to represent a necessarily constructive evolution of policy. An institutional change then
represents a disinterested shift that has different effects on different constituencies, and will only be
interpreted as progress by those that benefit.

income tax, second with the embedding of liberalism following the Great Depression,
and third with its disembedding following the inflation crisis of the late 1970s (Blyth
2002). The first two of these paradigm shifts will be explained in this chapter, and the
third will be discussed in Chapter 3.
Before going on to explain the causes of these paradigm shifts, it is important
to clear up a few definitions. In this paper, the terms liberal and conservative
must be understood outside of the current political context. In current electoral
politics, the term liberal often applies to the general values of the Democratic Party,
while the term conservative often applies to the general values of the Republican
party. However, in its original sense, liberal means free (in the sense of the limited
imposition of traditional forms of authority or traditional cultural mores), and a liberal
democracy was one in which all people were to be treated equally and the
government would not excessively limit the free choices of citizens or groups. Thus,
both the Democratic and Republican parties can be characterized as liberal in
modem times, the former with a greater emphasis on maximizing equality, and the
latter with greater emphasis on maximizing liberty (Brown 2005). In the specific
context of the sections that follow, therefore, liberalism is not meant to distinguish
Democrats from Republicans, but to define an economic philosophy that is intimately
tied to the ideas of equality and liberty.
There are a few variations on the meaning of liberalism in the US that will be
important in the remainder of this thesis. The most relevant dichotomy is between

embedded and disembedded liberalism, which refers to the relationship between
economic and social factors. Embedded liberalism,8 then, is a system in which a
governments economic decisions are made based on the potential social
consequences. In such a system, government action to promote goals such as the
reduction of unemployment, the provision of public services including education,
infrastructure, and a social safety net, and even the redistribution of wealth are
considered legitimate reasons to collect taxes and reinvest the revenues. On the
contrary, disembedded liberalism entails a system in which economic goals are
prioritized, and social ends are thought to follow naturally. In other words, ideas such
as promoting growth and controlling inflation are thought to be the primary functions
of government, and all other investments such as public education and infrastructure
are only considered legitimate because they enable the economy to grow. In the last
thirty years, a further extension of disembedded liberalism has arisen with an even
greater emphasis on the power of the market. In one sense, this set of ideas represents
a return to the pre-World War II classical liberalism and has thus come to be known
as neoclassical or neoliberal. However, as Brown explains, /teoliberalism establishes
[the principles of economic liberalism] on a significantly different analytic basis from
those set forth by Adam Smith which leads to an extension of market rationality into
many other spheres of human behavior (2005, p. 39). Coming to prominence during
8 The term the compromise of embedded liberalism was first coined by Gerard Ruggie in 1982,
though different aspects of the concept were first developed decades earlier by Karl Polanyi and John
Maynard Keynes (Kirshner 1999).

the Reagan era, neoliberal principles had a significant influence on the ideas that were
built into TABOR.
These variations on American liberalism are seen in the four major time
periods that will be analyzed throughout this thesis. The first period covers the end of
the 19th century and was characterized by a distinctly limited government. After the
Civil War, the government had increased its influence to protect civil rights by
abolishing slavery and expanding voting rights. However, the US government did not
interfere in the market, and individuals were left to fend for themselves in the
unregulated business world. Developments in the early years of the 20th century
including trust-busting and the establishment of the federal graduated income tax in
1913 represented the initial stages of the embedding of liberalism in social goals.
Though this new tax system was deliberately redistributive, the federal governments
economic reach was still somewhat limited and would remain so until the Great
Depression opened the door for new changes. The new regulatory policies and social
programs developed as part of the New Deal represented a significant change in
which liberalism became firmly embedded. This paradigm lasted until the late 1970s
when new economic conditions brought about yet another shift in which liberalism
was largely disembedded and neoliberal ideas began to rise.9 It was during this
9 It should be noted that many institutions from the New Deal era remained even as others were eroded
during the Reagan era.

neoliberal paradigm that TABOR was finally passed in Colorado.10 In the subsequent
sections, I will examine the periods of stability and the significant changes that
occurred between 1900 and 1970. The analysis of federal policy changes is important
specifically because of the influence of federal policies and ideas on the institutions
created in Colorado during the same time period. Furthermore, the case studies will
be used to demonstrate the application of the theories of institutional change outlined
in the introduction. In each section, I will examine the conditions of the periods
institutional stability, the development of the problem, the new ideas, and finally, the
processes and actors that managed to identify the ideas as solutions to the problems
and exploit certain historical contingencies and political conditions to change the
existing institutions through new laws.
The Dawn of Modem Tax Policy
In his review of the evolution of modem democratic capitalism, Steinmo
begins by painting a picture of the system of taxation in place at the end of the 19th
century, which he describes as less of a system than a collection of disparate excises,
duties and taxes on an amazing array of items and serviceseverything from mens
hair powder, to windows, to salted cod (p. 209). Prior to 1913, the federal
government had only implemented broad excise taxes and income taxes for
emergency purposes during the War of 1812 and the Civil War, respectively, but in
10 In the final chapter, I will look at some of the changes that have taken place in 2009-10 to evaluate
whether or not we are on the verge of experiencing yet another paradigm shift.

both cases, the taxes were eliminated shortly after the wars had ended (Pechman
1987). Aside from wars, the expenditures of the federal government were minimal
during the 19th century. Similarly, state governments had very limited revenue needs.
The Developing Problem of Unequal Income Distribution
Towards the end of the century, many social problems were becoming more
apparent, and the tensions between laissez faire capitalism and egalitarian ideas grew.
On one hand, the dominant strain of liberalism was decisively individualist,
property-oriented, and laissez-faire (Dolbeare & Cummings 2010, p. 289). William
Graham Sumner represented these views with a Social Darwinist vision of a
meritocratic society and scathing critique of government involvement in the economy
(1884). On the other hand, awareness of the masses of people struggling through
poverty elevated the concern for egalitarianism. Critical of concentrated wealth,
Henry Demarest Lloyd stated, We have nearly finished democratizing kings, and we
are now about to democratize the millionaire (1894, p. 347). Lloyd suggested that
the government had only been used for the enrichment and aggrandizement of a
few (p. 348), and he pushed for changes to the system, partially through a more
democratic tax policy.
As fiscal policy had been dominated by the laissez-faire tradition, the idea that
it was consistently used for the benefit of a specific few was among the earliest
acknowledgements that a general policy of noninterference in the economy did not

necessarily provide the equality of opportunity advocated by Sumner, and that the
laissez-faire policies were not without a normative bias. This concept was later
solidified by Herbert Croly, who argued that under a legal system which holds
private property sacred there may be equal rights, but there cannot possibly be any
equal opportunities for exercising such rights (1909, p. 419). Crolys work marked a
turning point in the development in modem liberalism. Croly retained the
Jeffersonian goal of an egalitarian society, but he rejected the Jeffersonian means of
achieving this goal through individualism and limited government. Instead, Croly
integrated the Hamiltonian means of counting on a democratic government to
advance the Jeffersonian goals, and he justified the increased role of government by
demonstrating the failures of the laissez-faire system and explaining that [t]he
practice of noninterference is just as selective in its effects as the practice of state
interference (p. 421).11 The divisions between the Democratic and Republican
parties were transformed during this period by ideas such like Crolys, where
Republicans maintained that a laissez-faire system would provide optimal outcomes
for people, while Democrats became advocates of an increased role for government.
11 Even as noninterference was part of the ideological paradigm regarding economic policy, there were
many cases where the government had indeed gotten involved in the economy, though generally for
the benefit of the rich by helping the industrialists to gain new property during the westward expansion
and by blocking labor strikes.

The Rise of New Egalitarian Ideas
The vast social problems of this era were increasingly perceived to be the
results of the general noninterference of government on behalf of the working classes.
The social movements of this period embraced this interpretation and through their
efforts advanced their argument that policies must be changed.
Both the Populist and Progressive movements had effects on American
political thought leading up to the major tax policy changes in 1913, and both had
especially deep roots in Colorado. The Populist movement and its political wing, the
Peoples Party, first sprung from farmers frustration with the banking system in the
late 1880s (Dolbeare & Cummings 2010). Among their demands were an abolition of
national banks, the creation of a graduated income tax, limitations on overall
government spending, increased government regulation and public ownership of
communication and transportation infrastructures, increased rights for organized
labor, and the direct election of US Senators. As stated in the platform of the Peoples
Party prior to the 1892 election, these demands were brought about because of the
deteriorating material conditions in the US, specifically the increasing concentration
of land and wealth in the hands of a few, and the frustration with both the Democrats
and Republicans whose leaders were inadequately addressing these problems. These
sentiments were so embraced in Colorado that the Populist candidates won a number
of seats in Congress and in the Colorado General Assembly in 1892, and Colorados
electoral votes went to the Populist presidential candidate (Cronin & Loevy, 1993).

At the beginning of the 20th century, the success of the Populists had
diminished and new groups arose to seek change. While some groups, such as the
anarchists and the socialists, sought to fundamentally change the foundation of
American democracy and capitalism, other groups pursued change within the existing
political structure. The Progressive movement fell into the latter category, and
embraced many, though not all, of the same views and goals as the Populists. While
the Progressive party failed to achieve great political success for candidates, it
nonetheless had a lasting impact on American politics through a number of
constitutional amendments and through the institution of the initiative process in
several states, including Colorado (Dolbeare & Cummings 2010).
The Politics and Processes of Change
The first major changes to the tax policy landscape occurred in response to
these problems and new ideas at the beginning of the 20th century. Awareness of the
numerous problems of the existing system had penetrated the mainstream as was seen
by the widespread influence of the Populist and Progressive movements, who
advanced the idea that the people must retake control of their government from the
corporations (Dolbeare & Cummings 2010). These movements in turn produced the
policy ideas that would constitute two significant institutions that would structure
political choices for many years. First, numerous states adopted ballot initiative
processes that would endure and shape political decisions for years to come. Second,

the states ratified the 16th Amendment to the US Constitution, paving the way for the
pursuant institution of the first permanent income tax. This historical moment was a
critical juncture in which new ideas emerged to replace old ideas and put in place a
new set of institutions that would endure for many years.
The first of these ideas was seen as numerous states began to empower
citizens through the initiative process.12 In 1910, the Colorado General Assembly
responded to the pressure from the Progressive social movement and referred a
measure to the voters that would create a new mechanism for modifying both statutes
and the constitution in which citizens could draft their own proposals and collect
petition signatures to place the amendment before a vote of the people. At the time,
this initiative process was supported by the Democratic party who, along with the
Populists and Progressives, argued that the change would make it easier for citizens to
hold their legislature accountableindeed, it was the Populists that first proposed
such an initiative process in Colorado in 1893 (Shockley 1980; Martin & Gomez
1976). This proposal was opposed by the Republican party who argued that the
amendment would hurt representative government and would be harmful to the
financial and social welfare of the state (Cronin & Loevy 1993, p. 94). Even with
divided opinion over this new idea, perceptions of the rising problems had gained
enough traction to create a policy windowan opportunity for new ideas to arise.
12 Colorados 1876 constitution included two amendment mechanisms. The first, which has never been
used, allows the legislature to call together a constitutional convention with a two thirds vote in both
houses (Cronin & Loevy 1993, p. 93). The second allows the legislature, again with two thirds votes in
both chambers, to send referred measures to a vote of the people.

The enthusiasm of Colorados voters for this new process was clearly
represented by the fact that thirty two proposals appeared on the 1912 ballot (Martin
& Gomez 1976, p. 207). While twenty states adopted initiative processes during the
Progressive Era, most only allowed statutory changes. Colorado was the only state to
bestow upon the voters the power to change its constitution (Dolbeare & Cummings
2010). Later, as other states began to allow constitutional initiatives, Colorados
process continued to be more accessible because the number of petition signatures
required to get a proposal on the ballot was lower than other states (Cronin & Loevy
1993). Colorados decision to adopt the initiative process proved consequential in
later years through numerous tax policy changes including constitutional amendments
such as TABOR. Nearly a century later, the initiative process has become such an
enduring institution that its legitimacy is rarely questioned.
Barely two years after Colorados historical moment, a similar policy window
opened at the federal level following several years of failed attempts. Not only had
the rise of the Peoples Party created electoral concerns for the existing major parties,
but the persistence of the social movement had increased the awareness of the failings
of the existing system to the point that policy makers began to search for new
solutions that fit within their cognitive paradigms. The Populist platform in the 1890s
pushed for the institution of a graduated income tax, and seeing the potential for
electoral gains for the Peoples Party, policy makers sought to ease the tension by
passing such a tax in 1894 (Pechman 1987). However, significant institutional hurdles

remained in the way, and the Supreme Court ruled this income tax unconstitutional
because the taxes were to be directly collected rather than apportioned among the
states based on population. Before a federal income tax could be adopted, the US
constitution would first have to be amended to allow direct taxation.
As the Populist movement gave way to the Progressive movement, the idea of
the income tax remained popular as a policy solution that fit with the cognitive
paradigms of advocates and leaders alike. Meanwhile, alternative solutions including
socialist and anarchist proposals failed to resonate with enough of the population to
be considered viable. The political climate was increasingly ripe for change, as the
Republican, Democratic, and Progressive parties all struggled to propose policies that
would address the concerns of the American people.13 In June 1909, President Taft
proposed a corporate income tax, and in July, Congress passed its resolution
proposing the 16th Amendment. Over the next two years, states gradually began to
ratify the amendment, and in February 1911, Colorado became the twenty-first to do
so. Another two years later, a sufficient number of states had signed on and the
13 The Progressive party began to make its mark in the lead-up to the 1912 election, and gained major
steam with the candidacy of Theodore Roosevelt. Roosevelt, having served as a Republican US
President from 1901-1909, had challenged incumbent Republican William Howard Taft in the 1912
primary. After losing, Roosevelt became the nominee of the Progressive party, but both Roosevelt and
Taft ultimately lost to Democratic nominee Woodrow Wilson. Similarly that year, the Colorado
gubernatorial race saw a victory for the Democratic candidate, Elias Ammons, while much of the vote
was divided between the Republican and Progressive candidates (Ubbelohde, Benson, & Smith 2001,
p. 272). Two years later, however, the tide turned in Colorado as the reform-oriented voters split
between the Progressives and the Democrats, thus leading to a victory for Republican candidate
George A. Carlson.

amendment was officially ratified into the US constitution. Shortly thereafter, the
1913 individual income tax was enacted.
In Colorado and in Washington, two different critical junctures had arisen
from the same growing perceptions of problems with the extant paradigm. In each
case, legislators responded to the growing concerns by enacting policies largely
derived from the specific ideas advocated by the major social movements. This kind
of legislative response is a case of adaptive expectations in which the leaders opted to
comply with the growing public sentiment rather than risk losing public favor by
With regards to the new graduated income tax at the federal level, the
persistence of the proponents was a crucial component as the first attempts to change
the law failed in the face of early obstacles. Steinmo argues that this fundamental
change was the culmination of a major debate about fairness in American taxation
and marked the origin of modem tax policy based on three principles: efficiency,
universality, and equity (2003). Because the previous fiscal policy was increasingly
seen as harmful to the working classes, this new tax law was overtly redistributive,
and these income taxes, or class taxes, were paid only by the very richest
individuals and companies. Steinmo points out that the US and other industrialized
countries had experienced a broad shift in social values, both among the masses and
the elite policy makers, and the new idea of the graduated income tax was seen as a
policy solution to raise revenues in a fair waythat is, based on ability to pay.

It is important to note that the changes in Colorado and US policy were not
simply responses to social movements. The process by which the cognitive paradigms
and normative frameworks of policy makers adapt to new conditions determines the
timing and the form of the outcome. The social movements struggled for two decades
to gain widespread acceptance of their account of societys problems, and the solution
ideas proposed by these movements were limited by institutional barriers. The ideas
of the initiative process and the federal income tax were selected because they were
seen as both effective and politically possible. Even so, it was far from certain that
the ideas would gain enough traction to enable the passage of the required
constitutional changes. The power of the ideas themselves played a crucial role. The
idea of the graduated income tax, formerly just an economic abstraction, was able to
influence the normative frameworks of a majority of the population by identifying
this new idea as fair. Likewise, the initiative process grew to be considered both
fair and democratic.
As Steinmo points out, Policy ideas are not... simply floating around waiting
to be used by entrepreneurial policy activists. Instead, substantive historical
experience in time 1 substantially shapes policy elites ideas about policy options in
time 2 (2003, p 208). The experience of the policy elitethe experience that shaped
their cognitive paradigms and normative frameworksmay very well have been
influenced by the growing success of third party groups such as the Peoples Party in
1892, and thus they began to embrace some of the values of Lloyd, Croly, and others

while abandoning the social Darwinist ideas of Sumner. The evolution of ideas and
actors over the years, culminating in the adoption of the initiative process in Colorado
and the creation of a federal graduated income tax, indeed represented path-dependent
policy changes that were institutionalized into stable regimes that would last many
years. As we will see, this new law itself, along with its accompanying norms, created
new institutions that would shape the political and economic landscape in future
years, complete with both successes and failures that would influence future ideas
about problems and solutions.
Depression, War, and the Embedding of Liberalism
Only a few years after the establishment of the income tax, the US entered
World War I and as Steinmo puts it, the ability to pay principle was taken to some
remarkable extremes with very high marginal rates (2003, p. 210). Even though the
top marginal rates were dialed back at the end of the war, the federal government
continued to have substantially greater revenues than ever before. Furthermore, this
tax system had become the new normal, and the legitimacy of the class tax was
widespread if not universal. While there were arguments about the appropriate levels
of progressivity, it was now clear that tax system could and should be used as an
instrument of economic redistributive policy (Steinmo 2003, p. 210, emphasis in
original), and to repeal them would violate commonly held values about social
equity (p. 211). Not only was it commonly held that tax policy should be

redistributive, but there was also great agreement on specific policies, including the
idea that unearned income, such as that from property inheritance, should be more
heavily taxed, and the idea that retail sales taxes, which were more burdensome on
lower classes, were generally unfair.
Considering the models of institutional stability, Steinmos evidence supports
the ideas of positive feedback and path dependence during this period. The concern
about the impacts of repealing the progressive tax is an example of what Pierson calls
the high cost of reversal (2000). As more and more people benefited from the
progressive taxes, it became much more politically difficult to change, and it is not
until exogenous events or latent policy impacts begin to reduce this benefit that voters
become less supportive of the policy, thus opening a window for future change. It is
important to remember that it is not the material interests of the actors alone that
determine the future policy changes, but it is their perception of those interests (Blyth
2002). Whatever the causes of the change in their material well being, their own
conceptions of the causes ultimately shape their voting behavior. These kinds of
conceptions are driven by historical experience but can also be shaped by rising
intellectual arguments.
In political economy, this concept is particularly poignant. Because of the
great complexity of economic outcomes, actors rely on their existing cognitive
paradigms to help them understand the causes of problems and the options for
solutions (Pierson 2000; Campbell 2002). As Pierson explains, The development of

basic social understandings involves high start-up costs and learning effects; they are
frequently shared with other social actors in ways that create network effects and
adaptive expectations. The need to employ mental maps induces increasing returns
(2000, p. 260). Examining the changes that culminated in 1913, the struggles of the
previous few decades constituted the high start-up costs, and the changing views that
emerged in the final years of the debate, both identifying the problem as too much
concentrated power for the rich and favoring solutions such as the income tax and
initiative process, represented the learning effects. The institutional stability that
followed can be explained both by the reinforced preferences of the masses14 and by
the understanding of the difficulty of changing things again. As the status quo
appeared to be working for the majority, the people had little reason to be uncertain
about the policy direction, and they were not motivated to push for a change.
Even the onset of the Great Depression was not enough to disrupt the class tax
paradigm, especially as those at the top, including large corporations and trusts, were
largely blamed for causing the depression (Blyth 2002). Such shocks can very well
open a policy window, but only if the other elements are in place, including
agreement about the nature of the problem and the idea for a solution and the policy
entrepreneur to guide both the problem and the solution through the political
processes (Kingdon 2011). In this case, the change in the market did indeed lead to
increased uncertainty among actors about their interests, but the force of path
14 Because the masses felt that they were benefitting from the new income tax system, they remained
committed to the fairness of such a system.

dependency was so great that the proposed solutions did not constitute a policy
reversal but instead continued in the same direction with new changes to help the
people struggling in the hostile economic environment.
The Contest to Identify the Problem
Blyth goes into painstaking detail as he reviews the sequence of ideas
introduced to explain the causes of the Great Depression (2002). Blyth argues that six
major sets of ideas influenced the policy debate throughout the 1920s and 1930s:
theories of sound finance, antimonopoly, administered prices, underconsumption,
secular stagnation, and growthsmanship. At various points throughout the 1930s, each
of these theories claimed to have correctly diagnosed the nature of the economic
crisis, and each proposed its own solutions.
Fundamentally, each of these ideas required different kinds of government
involvement in the economy. For the plans that required increased government
spending, tax policies would have to be modified accordingly. Three basic questions
about tax policy had to be answered. First, should the government invest in new
programs theorized to stimulate economic recovery, or should it focus on sound
finance through keeping taxes low and cutting spending accordingly? Second, would
new spending be funded by deficits, new taxes, or both? Third, how should new taxes
be collected?

The first of these questions represented the greatest hurdle for policy makers,
as the ideas of Keynesian fiscal stimulus15 had not been tested. Even after a number
of other approaches had failed, Roosevelts initial investments in domestic spending,
including old age pensions, unemployment insurance, and public employment
programs, were not enough to bring about economic recovery. It was not until the US
entry into World War II consolidated support for increased spending that the political
situation allowed for an increase in taxes.
While the level of detail presented here has been limited, it is nonetheless
clear that a series of ideas were presented and most were unable to solve the problem.
Blyth (2002) argues that this succession of ideas was made possible by the broad
public uncertainty. Individuals and groups were unsure about which policies would be
most beneficial to their own material interests, and thus the resistance to new ideas
was muted.
The iterative process by which new policies were developed shows that no
singular explanation was initially available to draw a lasting connection between the
material problems and a clear solution. Instead, a variety of explanations were
presented to account for the problems, and while policy makers adopted some new
policies in response, none of these policies were able to be crafted into lasting
institutions until a policy window was opened by historical contingencies and a policy
entrepreneur brought together the three streams of problem, policy, and politics. In
15 Such stimulus is most closely associated with the aforementioned idea of growthsmanship, but is
also intimately tied to theories of underconsumption.

the following two subsections, I will discuss the policy ideas that were finally
accepted and the processes by which the required compromises were reached.
Tax Policy Solutions in the US and Colorado
By the end of the policy debate, the predominant view was that a lack of
purchasing power among consumers was responsible for the prolonged effects of
the 1929 depression.
By October 1937, how far these new ideas had permeated the states
response to the crisis was heard in one of Roosevelts fireside chats. Blaming
the recession [of 1937] squarely on the failure of purchasing power,
Roosevelt advocated a new round of expenditures totaling $3.5 billion with
the hint of more to come. (Blyth 2002, p. 75).
Though different in the details, three of the new ideas of the time included this factor
in their diagnoses: underconsumptionist theories, the secular stagnation thesis, and
growthsmanship.16 For various reasons, the first two of these were ultimately
dismissed in favor of the third. Growthsmanship, unlike the other theories, had
combined the mass concern over purchasing power with the concerns of the business
community over maintaining a system of free enterprise.
While the final compromise was not accomplished until after World War II, a
number of ideas about stimulating demand took place earlier with the Social Security
Act, the Civilian Conservation Corps, and the Works Progress Administration. As
these new programs required states to provide a share of the funding, Colorado had to
16 All three theories were generally connected with the work of John Maynard Keynes, though each
was essentially its own American adaptation.

reconsider its revenue systems during this period. However, it was the great cost of
the war itself that finally required new thinking about the tax system at the federal
Politics and Processes of Change
As was mentioned earlier, Steinmo defines modem taxation as a system that
incorporates equity, universality, and efficiency (2003). In the early years of the class
tax paradigm, equity was most heavily emphasized, but efficiency played its part, as
taxes were more easily collected from top income earners than lower class workers,
many of whom worked in agriculture. This fact worked against the universality of the
income tax. As the US economy became increasingly industrial, Steinmo points out
that more workers were receiving paychecks from employers, and this shift made it
possible for more citizens to pay income taxes because they could be withheld from
their paychecks, thus increasing both universality and efficiency.
The underconsumptionist ideas, when they came along, resonated with some
of the themes associated with the class tax as they emphasized the well being of the
lower classes, this time with regards to their purchasing power rather than simply
their lack of ability to pay higher taxes. Going beyond viewing redistribution of
wealth as a moral end, this redistribution was seen as critical to stabilizing the
economy. With the Social Security Act of 1935, these goals were pursued through old
age pensions and unemployment insurance. While the prominent business

organizations of the time opposed the final passage of this and other bills, the form
had been modified in many ways to meet their concerns. As will be shown below, the
interests of business and labor were key political constraints on the process and were
exploited by Roosevelt to achieve agreement on the new legislation.
In Colorado, state income and sales taxes had not yet been established at the
time of the 1929 stock market crash, though thirteen other states had adopted an
income tax (Colorado Legislative Council 1954). State expenditures were fairly
limited with much of the revenue going to public schools. Beginning in 1912,
multiple groups began to explore alternatives to the existing property tax system
which was seen as both unfair to property owners such as farmers and also
increasingly inadequate to deal with intangible property. Colorados voters rejected
the first such measure in 1922, and during the years that immediately followed, the
state was receiving sufficient revenues from the property taxes, so the issue lay
dormant. As the depression hit, Colorado sought to follow some of the same policies
of sound finance pursued during the end of the Hoover administration and the first
few years of the Roosevelt administration, and attempts to establish an income tax
were initially rejected, first in 1932 with two initiated amendments and again in 1933
with a referendum. Nonetheless, this idea retained substantial popularity among both
parties in the General Assembly and many other groups representing interests in
agriculture, education, and labor.

The plight of Colorados citizens was most acute in the winter of 1932-33, and
for a time, popular demand for increased assistance for the poor trumped the anti-tax
sentiment (Wickens 1969). As New Deal programs such as Social Security, the
Civilian Conservation Corps, and the Works Progress Administration went into
effect, the Colorado General Assembly recognized that the state could not receive the
much needed federal aid without contributing a share of the cost (Cronin & Loevy
1993). Thus, in two special sessions in August and December of 1933, the General
Assembly met to sort out the appropriate ways to generate revenue, eventually
deciding on an increase in the gasoline tax.17 While this tax raised only minor
revenues, it was sufficient to draw the federal aid. Wickens argues that with the
passage of the gasoline tax, Conservatism in Colorado buckled under the demands of
the poor who threatened the very existence of state government (1969, p. 280).
Even while Coloradans benefitted from the New Deal programs, many elected
leaders, including two Democratic governors, opposed the increased state
intervention in the economy. Nonetheless, the state legislature established a 2% sales
tax in 1935 and created the Department of Public Welfare the next year. Indeed, it
was a tenuous balance as Colorado sought to maintain its independence from the
federal government and a laissez-faire economy while also seeking to provide aid to
the people struggling during the depression.
17 The state had previously enacted a one cent per gallon gasoline tax in 1919 (Colorado State Archives

In 1936, the General Assembly again referred an income tax amendment to
the voters, and this time it passed with just over 51% of the vote (Colorado State
Archives 2010; Cronin & Loevy 1993, p. 95; Colorado Ballot History 2010;
Ubbelohde, Benson, & Smith 2001). Under the new system, individual income taxes
were graduated from 1% for annual incomes under $2,000 to 6% for incomes over
$10,000; corporate net income was taxed at 4%, and financial institution profits were
taxed at 6% (Colorado Legislative Council 1954).
The debate over this new tax system was multifaceted. On one hand, debate
revolved around competition with other states to attract industry. Some felt that the
new tax would repel industry, but others argued that this would not be an issue
because by then thirty-two other states had adopted income taxes. Other arguments
considered issues of fairness and efficiency. After the problems with applying
property taxes to intangible property, the income tax was considered to be a more
efficient mechanism for collecting such taxes. With regards to fairness, both regional
distribution issues and equity came into the debate. First of all, by taxing incomes, the
more affluent elements of the population in the Denver area would be contributing to
the funding of rural schools that had previously struggled under the property tax
system; not surprisingly, this change was considered by many Denver residents to be
unfair. Secondly, the graduated income tax was firmly rooted in the principle of
ability to pay, and as such was considered a fairer alternative to the property tax

It is unclear who the specific actors or policy entrepreneurs may have been
during this period, but Colorados final passage of an income tax represented the
convergence of agreement about a problem, a clear (though contested) idea for a
solution, and an urgent political situation. Persistence on the part of income tax
advocates led to its eventual passage, and once in place, the new system became a
stable and self-reinforcing institution. From 1939 to 1954, the income tax law was
amended several times, both to modify the income brackets and rates as well as to
provide different kinds of exemptions, but a comparable structure is still in place
At the federal level, the need for revenue did not necessitate a major change in
tax policy until the onset of World War II. The existing class tax system was thought
to have been essentially stretched to the limit, so in order to fund the war effort, the
federal government both increased deficit spending and expanded the income tax base
(Steinmo 2003). Equity was still highly valued and the lowered tax threshold was
accompanied by an increase in the marginal rates on the wealthy. The American
people, largely united in support of the cause to defeat Hitler, were willing to all
contribute their fair share. This change represented the shift from the class tax to a
mass tax.
From 1939 to 1944, massive federal spending caused the unemployment rate
to fall from 17.2 percent to 1.2 percent. During that time period, the business
community discontinued the practice of broadly criticizing these policies as

capitalism was given credit for the prodigious feats of production (Collins quoted in
Blyth 2002, p. 79). The war had provided the needed justification for increased
spending at a level that had not been politically possible with domestic spending
alone. Without this particular historical contingency that reduced general uncertainty
by providing a clear way forward, Roosevelts domestic plans might not have been
able to truly bring about economic recovery, and a different set of solution ideas
might have risen to prominence.
As the war came to an end, the adherents of the secular stagnation theory
viewed the deficit-fueled investments of government in various spending programs to
be permanent necessities. On the other hand, business interests drew on Hayeks
critiques of centrally planned economies which had become loosely associated with
Stalinism in the Soviet Union and thus very much opposed the specific ideas
represented in the 1945 Full Employment Bill. However, recognizing that a return to
the vast unemployment of the depression era represented an even greater threat, the
business community mobilized their support around compromise in what came to be
the idea of growthsmanship. The compromise that followed was a restricted version
of embedded liberalism, one that would avoid the pitfalls of laissez faire and the
political consequences of stagnationism in the future (Blyth 2002, p. 90), and the
new policies accepted the need for government to continually adjust policy to
maintain minimal employment levels (p. 93). The resulting growth was seen as a
solution to maintain consumption while ensuring steady profits for businesses.

The core point to take from the preceding analysis is that the numerous
problems of underconsumption and deficits along with the politics of business and
labor were brought together under a very specific set of historical circumstances.18
Blyths analysis shows that there was not just one single policy entrepreneur that
could be credited with the wide scope of changes between 1929 and 1947, but instead
numerous political leaders and interest groups influenced the debate at different
times. In the end, the American economy became embedded in the social goals of
maintaining employment while retaining significant focus on the economic goal of
growth. Thus, Blyth describes the final compromise as a weakened and restricted
version of embedded liberalism (2002, p. 90). The accompanying widespread
economic prosperity ensured that many of the New Deal policies would remain
unchallenged for several years.
Using Tax Policy for Social Goals
The period of stability following World War II was characterized by the
general acceptance of universal income taxation and increased government
intervention in the economy to advance social goals. While certainly present in
Colorado and US policy, new policies associated with embedded liberalism were also
18 Much like the early years of the Roosevelt administration, we are seeing today that the Obama
administration has struggled to find agreement on substantial new stimulus spending. The American
Recovery and Reinvestment Act, passed in February of2009, was largely criticized by Keynesian
economists for being far too small to provide the stimulative effects required to bring about rapid
recovery (Krugman 2009).

instituted in all western democracies (including those with governments dominated by
conservatives) primarily because the ideational foundation of the tax system had
undergone an institutional shift throughout the developed world (Steinmo 2003).
Between the development of the welfare state and the apparent stimulative effects of
deficit spending during the war, policy elites in most Western democracies had come
to accept that democratic government could meaningfully manage the capitalist
economy, largely through tax policy.
The stability of the post-war period was made possible by the
institutionalization of the idea of growthsmanship discussed by Blyth (2002). Much
like the initial institutionalization of the class tax after 1913, the stability of
embedded liberalism can be explained using Piersons concepts of self-reinforcing
dynamics. The long struggle and the succession of various ideas throughout the
economic recovery represented high start-up costs and correspondingly high costs of
reversalall parties were eager to avoid rehashing the debate that had taken place
over the previous seventeen years. Furthermore, while the economy was thriving, a
wide variety of interests benefited, including business, labor, and agriculture. These
groups largely perceived their own interests to be associated with the maintenance of
the new status quo. As we have seen, institutionalized ideas are manifested in the
relative certainty that the extant policy paradigm is the best option available. An
understanding of the difficulty of future change combined with the lack of widespread

desire to seek future change enabled the stability of the New Deal policies for several
One development within this paradigm would come to have significant
consequences by the 1970s. In addition to collecting taxes and then investing the
revenues in new social programs, governments including those of the US and
Colorado began to use tax expenditures to incentivize certain kinds of market
behavior. In many ways, this mechanism was thought to be a more efficient way to
promote social goals than direct spending because it eliminated the step of collecting
and redistributing the revenues. A wide array of tax mechanisms were developed
during the post-war period to incentivize investments in economic activities that were
thought to be socially beneficial.19 In addition, there was widespread agreement that
the advancement of social goals through tax policy did not interfere with the
companion goal of economic growth. Unfortunately, the efficiency of tax
expenditures came at the cost of reduced accountability.
Because the tax expenditures were less visible than direct spending programs,
it was fairly easy for policy makers to create new exemptions to benefit both
widespread and special interests, and the number of these exemptions expanded
greatly in the 1960s and 1970s (Steinmo 2003). Furthermore, as the tax code grew
19 Again emphasizing that this was not a uniquely American phenomenon, Steinmo makes clear that
all countries engaged in these micro-manipulations of the economy via the tax code irrespective of
party, ideology, and level of economic wealth, and he goes on to explain that mainstream economists
rarely doubted that taxes could be used as instruments of what they called social control. The real
questions were which instruments were best and which were less useful (2003, p. 214).

increasingly complex it became more difficult to see the direct effects of various
exemptions, and because savvy taxpayers were able to manipulate their personal
finances to fit into various tax-exempt categories or loopholes, many of them were
able to radically reduce their own taxes without necessarily contributing to the desired
social goal that spawned the exemption in the first place. Together, these
consequences constituted a reduction in both the transparency and the accountability
of tax law, and while this continued to be an international phenomenon, it was by this
point more acute in the US.
As a result, by the 1970s and 1980s the masses increasingly viewed the tax
system as unfair, or inequitable, and policy elites began to question the efficacy of
these tax expenditures in achieving their social goals when they increasingly appeared
to be simply giveaways to the rich and powerful (Steinmo 2003, p. 216). Even so,
Steinmo explains that attempts to reform the system by converting tax exemptions
into accountable spending programs were met with resistance. By the 1980s, the wide
range of tax expenditures had begun to have a notable impact on the federal budget,
and the tax system as a whole experienced declining public support. The next chapter
will explore the consequences of the decisions made in this period and the kinds of
solution ideas that rose in response.

While the increasingly complex tax system planted seeds of discontent
among the masses, Blyth argues that the true impetus for change came from another
problem: inflation (2002). Blyth explains that the Vietnam War and President Lyndon
B. Johnsons Great Society programs had together begun to contribute to wage and
price increases, and while Johnson was aware of the inflationary pressures of funding
a war through deficit spending, he was unwilling to either raise taxes or increase the
discount rate to put a stop to the inflation, fearing that his social programs would
suffer. Furthermore, Blyth points out that institutional barriers contributed to this
failure to act, especially with regards to the increasing independence of the Federal
Reserve and the impact of this independence on Congressional behavior.
Combined with other factors such as largely unregulated international capital,
Blyth argues that the failure to stop inflation substantially increased uncertainty in the
US, particularly among business interests, though ordinary citizens were also feeling
the impacts of inflation on rising property values and the corresponding rising
property taxes. While the period following the compromise of embedded liberalism
was characterized by confidence in the direction of federal tax policy, Blyth states

that The combined effects of these policy failures [in the late 1960s and early 1970s]
was to signal to business that the state had expanded its role well beyond the limits
established as reasonable in the 1940s and 1950s (2002, p. 139), and thus these
groups began to see government itself as the problem. Embedded liberalism no longer
appeared to be providing the economic security that had attracted business towards
the compromise at the outset, and in addition, business interests were more negatively
affected by high marginal tax rates than other groups. This growing agreement on a
problem with the existing paradigm came to form the first of the three streams that
would bring about the next major change in tax policy. The policy stream was in
development in academic circles, and the politics streams would soon follow.
Revamped Ideas Come to Define a New Era
During the post-war era, Steinmo points out that The now dominant
definition of a good tax system was one that promoted social equity and allowed
governments to influence private economic outcomes in publicly determined ways
(2003, p. 215). However, the rising problems of unemployment and inflation in the
early 1970s called into question the validity of the compromise of embedded
If taxes were higher than ever, but yet the economy was unstable and
unemployment was rising, then what effect were these tax expenditures actually
having? Where was the money going? The general conclusion among many was that

the money was being wasted. However, many people were indeed benefiting from
government services during this period. The benefits of Social Security had continued
since their institution in the 1940s, and Medicare and Medicaid had recently been
enacted. The vast highway system established under President Eisenhower had
enabled expanded commerce. State and local governments were providing more
funding for public education, and more kids were able to go to college.
When unemployment and inflation (stagflation) began to rise, though, none of
these services seemed to matter. Among the people, the growing sentiment was that
the government was wasting their money in a bloated and inefficient bureaucratic
system. If the economic system was neither fair nor stable, then perhaps the
intellectual foundation of embedded liberalism was itself flawed, and as significant
segments of the population grew uncertain about how to pursue their own interests
without this coherent idea to guide them, a new set of ideas rose to the occasion.
Examining the emergence of new policy ideas, it is important to note that
alternative ideas certainly existed all through the era of embedded liberalism, but
because of the stable economic conditions of the 1950s and 1960s, they did not have
the opportunity to break into the mainstream and assert their influence on policy
(Blyth 2002). As early as 1964, the Republican presidential nomination of Barry
Goldwater was certainly a signal of dissent. Campaigning for Goldwater in California
and elsewhere was Ronald Reagan, who decried government waste and Democratic
policies designed to redistribute the wealth (Hyink & Provost 2004, p. 29).

In academia, the critiques of embedded liberalism began even earlier with
Milton Friedmans first monetarist publications in 1956 (Blyth 2002). As Blyth
argues, monetarism and three other economic ideas (rational expectations, supply-
side, and public choice theories) represented a partial return to some of the early
liberal economic philosophies, and these neoliberal ideas formed the intellectual
foundation of the rebellion against embedded liberalism that came to fruition with the
Reagan revolution in 1980 and had major impacts on Colorados tax policy changes.
These four neoliberal ideas had widespread consequences for American
politics, and Blyth carefully shows the intellectual processes by which these ideas
eventually discredited Keynesianism and by extension government action at large
(2002). The primary points of Blyths analysis are as follows. First, monetarism
effectively reprioritized social and economic goals by claiming that Keynesian ideas
were at best an interference in the natural business cycle. As a result, government
action to reduce unemployment was thought to do more harm than good, while at the
same time government action to control inflation through monetary policy (though
not through fiscal policy) was both possible and necessary.
Second, rational expectations theory expanded on these ideas with the
assertion of policy irrelevance by assuming that well-informed, rational actors will
immediately discount any [predictable] interventionist strategy pursued by the
government (Blyth 2002, p. 143), but that unpredictable government action would
exacerbate the business cycle. This theory concludes that Not only was government

intervention at best a waste of time and money, it was more likely downright
dangerous (p. 144). Instead, it was thought that government should simply
announce a policy of tight money and make that claim credible; the agents
expectations will adjust rapidly, thereby producing a painless deflation (p. 144). The
low political costs of such a solution increased its appeal.
Third, supply-side theory arose to counter the New Deal concept of
purchasing power. Instead, this new idea elevated the priority of allowing steady
production and business reinvestment which were required to precede demand for a
product. The best way to ensure sufficient supply, then, was to allow business owners
to keep a greater share of their profits. Out of this philosophy emerged the primacy of
reducing the top marginal tax rates.
Fourth, public-choice theory argued that democratic governments are
particularly prone to generating inflation... [because they] are elected to provide
goods to constituents (Blyth 2002, p. 146). Thus, politicians were also thought to act
in their own best interests, which were to get reelected, and they were thought to do
so by constantly increasing spending on services for their own constituents.
The combination of these four ideas had a few particularly notable impacts.
First, the blame for the economic woes of the country, which had been attributed to
wealthy corporations during the interwar years, had now been shifted to government.
Second, government action was delegitimized while the power of the market to
naturally provide for optimal employment levels was asserted more strongly than

ever. Third, to contend with the notion of increased federal deficits that would result
from reducing tax revenues, it was proposed that this increased investment would
lead to a growing economy that would produce equal if not greater tax revenues in the
end. By legitimating tax cuts for the wealthy, supply-side theory in particular
represented a direct attack on the effectiveness of using tax policy to redistribute
wealth, which, as was explained earlier, had become rather mainstream at the end of
World War II.
Together, these theories signaled the fall of embedded liberalism as social
goals faded to the background and economic goals were brought to the fore. Thus, the
policy elites that embraced these theories came to view tax cuts and sound monetary
policy as the only appropriate solutions to nearly every economic problem, and the 20 21
20 Even the classical liberal writings of Adam Smith suggested that the markets power was not without
limits. According to Sen, the huge limitations of relying entirely on the market economy and the
profit motive were also clear enough even to Adam Smith. Indeed, early advocates of the use of
markets, including Smith, did not take the pure market mechanism to be a freestanding performer of
excellence, nor did they take the profit motive to be all that is needed (2009). Sen goes on to point out
that Smith was not only a defender of the role of the state in providing public services, such as
education, and in poverty relief... he was also deeply concerned about the inequality and poverty that
might survive in an otherwise successful market economy.
21 This theory was exemplified in the Laffer curve. Another interesting point is that both the
Keynesians and the supply-side theorists share a similar rationalization for deficit spending, and each
side is highly critical of the other. Keynesian theory requires short-term deficits during recessions to
stimulate increased demand through new government spending, which in turn leads to economic
growth and the recovery of greater tax revenues. Supply-side theory requires deficits to stimulate
increased supply through tax cuts, which in turn lead to economic growth and the recovery of greater
tax revenues. Each side is heartily critical of the other. It should also be noted that many modem
advocates of tax cuts to stimulate economic growth reject the notion of deficit spending and instead
focus on funding tax cuts by reducing government spending, which Keynesians would argue actually
compounds the problem by reducing demand. Not surprisingly, these arguments tend to be underlying
factors that are rarely directly addressed in public discourse.

improved social outcomes were thought to come about naturally by allowing the
market to function without interference.
It was with the discontentment over high inflation and unfair tax policy that
the neoliberal ideas began to resonate. Government was the problem. Because of the
disconnect that had developed between taxes paid and services received by the
people, government had become a disembodied concept. Representative government
was no longer seen as the mechanism by which the people controlled their own
destinyit had a mind of its own.
The new set of ideas enabled the rise of neoliberal tax policies such as
TABOR by assigning blame for and bringing clarity to uncertain economic
conditions, thus enabling the collective actions that eventually led to another
paradigm shift. The Keynesian ideas that had dominated the thinking of the post-war
period, regardless of whether they were right or wrong, were largely perceived to
have failed, and tax cuts combined with tight monetary policy were perceived to be
the only legitimate solutions to curb inflation and restore economic growth. This
sentiment manifested itself on multiple fronts. First, candidates of all political stripes
began moving towards the neoliberal ideas both in their campaigns and in their
policies. Second, some of the themes of the progressive movement came back to life
through direct democracy. In both cases, the first symptoms appeared in California.

Applying the Theories of Institutional Change
to Direct Democracy
The theories of Blyth and Kingdon that explain institutional change were
originally developed around case studies of government action. In other words, Blyth
examined the influence of ideas as they applied to legislation passed in Congress, and
Kingdon studied the role of policy entrepreneurs in bringing together the streams of
problem, policy, and politics in the legislative process. In both California and
Colorado, major statutory and constitutional changes came about through the
initiative process, and thus we must reimagine these theories as they apply to direct
In his studies of the passage of Proposition 13 in California and TABOR in
Colorado, Smith makes progress in this direction (1996; 1999). Smith overtly taps
into the work of Kingdon by utilizing the concept of the policy entrepreneur, which
he transforms into the populist entrepreneur, and he inserts a degree of agency into
the purely structural-functionalist argument that economic and political conditions
angered a widespread population base and brought about a populist movement.
Smiths work importantly clarifies the underlying processes that led to the eventual
success of each initiative. He effectively shows how the policy entrepreneurs wove
together the three process streams in the context of direct democracy and how
specific historical contingencies made radical reform possible even without the
support of a populist movement like the movements of the early 20th century that

brought about the graduated income tax and the initiative process in the first place. As
will be discussed in the next section, he clearly demonstrates that genuine,
widespread populist movements were not involved in California in 1978 or Colorado
in 1992.
However, Smith focuses almost exclusively on agency and the interests of the
actors involved, and while he does make a point to acknowledge a certain public
mood that enabled some of the processes, he does not critically examine the nature
of the public mood. While agency is indeed an important component, Smiths
analysis does not explain either the role played by the ideas themselves or the
influence of institutional structures in guiding outcomes. My goal is not to counter
Smiths argument, as his work comprises a valuable piece of the puzzle. Instead, my
goal is to complement his work by asking why this public mood existed in the first
place and by looking at the ways that ideas and institutions interacted to determine the
choices made by the agents. By interjecting the theories of path dependency, I will
provide a more thorough understanding of the conditions that led to the passage of
TABOR in Colorado.
In the previous chapter, an overview of the major changes in US tax policy
over the course of American history revealed the role of both structural conditions
(e.g., the state of the economy) and the emerging ideas that set the stage for the next
paradigm shift (e.g., the shift from embedded liberalism to neoliberalism).
Furthermore, the history shows that the institutions that had been created and

stabilized over this period in turn came to narrow the range of choices for future
actors. I will now apply this model to an analysis of the tax policy changes in
California and Colorado that preceded similar changes at the federal level.
The Tax Revolt in California
Californias initiative process, like Colorados, came about during the
progressive era, and was established in 1911, only one year later than in Colorado.
While in many ways different in structure from Colorados, Californias initiative
process contains a similar procedure for collecting petition signatures to get a citizen-
drafted amendment on the ballot (Hyink & Provost 2004). Also like Colorados,
Californias initiative process was extensively used both during the progressive era
and during the time period since.
Californias Proposition 13, passed in 1978, required that local governments
reduce property tax rates to 1% of assessed value, and returned assessed values to
1975-76 levels (Ibid). The immediate result was to reduce property tax revenues to
local governments by 57%, or roughly $6 billion annually. Furthermore, it restricted
future increases in assessment to 2% a year except upon sale of the property (p.
174), and prohibited future state or local tax increases without a two-thirds vote of the
As Smith explains, conventional explanations have credited the passage of
Proposition 13 to a popular uprising of the people, but a closer look at the specific

actions of key actors reveals otherwise (1999). Smith shows that there was indeed an
anti-tax public mood, but this mood did not mobilize the population and there was
little active toiling of the masses (p. 203). Even the actions of Howard Jarvis
(which will be discussed further below) did not reflect those of a leader of a populist
movement. Instead, Smith argues that Jarvis was a populist entrepreneur who was
able to build and finance an organization to persuade voters to approve his proposed
solution to the problem of increased property taxes. The result, as Smith calls it, was a
faux populist moment in which Jarvis used populist rhetoric to tap into the
amorphous anger many Californians felt toward their rising property taxes and
unresponsive government officials (Ibid). On one hand, Jarvis was able to
disseminate his message by directing the organizational and financial resources of
the vested property interests (p. 204) to Californias extant initiative industrial
complex.22 On the other hand, Jarvis skillfully used his populist rhetoric to attract
media attention. As we will see in the analysis of TABOR in Colorado, this second
strategy was also heavily utilized by Douglas Bruce, who also operated in a political
context of amorphous voter anger allowing him major success in 1992.
22 Smith attributes the coming of the term initiative industrial complex to Peter Schrag, who credits
Proposition 13 for the creation of a professional network of political consultants and direct mail
specialists. However, Smith points out that these professional services had actually existed since the
1930s (1999, p. 202).

The Problem of Rising Property Taxes
As early as the mid 1960s, Californians began to observe rising property
taxes, but at the time, the problem was mostly related to the inconsistent methods
used by county assessors to evaluate property values (Smith 1999). By the 1970s,
however, the effect of inflation on home values and in turn property tax rates had
become a widespread problem. In some cases, the 1978 reassessments increased
home values between 250-400%, and the corresponding property tax increases
especially hurt those on fixed income, many of whom were faced with possibly losing
their homes (Hyink & Provost 2004). Californians were frustrated that their local
governments did not reduce property tax rates to offset the inflationary effects, and
this frustration set the stage for a policy entrepreneur to advance a new idea through
the initiative process.
Neoliberalism Provides a Unifying Cause
The ideas of Howard Jarvis, Paul Gann, and others including California
Governor (and ultimately US President) Ronald Reagan represented views long held
by the opposition to embedded liberalism, even while significant business
organizations had basically put together the language of the compromise that shaped
the US economic system after World War II. Yet these individuals and their ideas
were not able to achieve major success until the late 1970s. Why not? Revisiting
Kingdons argument (2011), a perspective on the problem and an idea for a solution

are necessary conditions for change, but are not sufficient. The task is then to analyze
the reasons that these ideas were not successfully implemented into official policy
changes until 1978.
Smith makes the point that Positive public opinion in response to a ballot
measure is hardly equivalent to social action (p. 203). Though Smith does not utilize
Kingdons terminology beyond borrowing the word entrepreneur and reflecting on
the public mood as a political factor, his argument very clearly is of similar mind and
appropriately translates Kingdons theories of policy changes from legislative politics
into direct democracy. Jarvis, through persistence and the expenditure of significant
effort over several years, finally succeeded in connecting the process streams of
problem, policy, and politics in 1978. The problem was that people were struggling
with the consequences of inflation, and one symptom of this struggle was seen in
rising property taxes. The policy was the idea to directly limit property tax rates and
prohibit state and local governments from increasing them without a supermajority
plebiscite. The policy entrepreneur that united the policy with the problem and guided
both through the political and institutional constraints was Howard Jarvis.
It is in the diagnosis of the problem and the proposal of new solutions that the
developing neoliberal ideas made their mark. It is unclear whether Jarvis himself
followed the economic publications criticizing Keynesianism (such as the writings of
Milton Friedman and others), and it is not the purpose of this article to uncover his
specific introduction to these ideas. What is clear, however, is that the ideas had been

introduced into public policy circles as seen by the anti-government rhetoric exhibited
in the Goldwater campaign of 1964 and also by the language used by Jarvis in
promoting Proposition 13. These ideas were circulating in the political atmosphere
and were readily available for Jarvis when he began exploring policy solutions. Had
Keynesian theories instead been influencing Jarvis, his solutions might have instead
involved convincing the public that the only way to stop inflation was through
increases in taxes and interest rates.
Merging the Problem with the Policy and
Navigating the Political Process
The most important figure in Californias tax limitation initiatives in the
1970s was the aforementioned Howard Jarvis, a successful businessman and a one-
time Republican candidate for the US Senate (Smith 1999). Shortly after his senate
campaign came to an end, Jarvis became involved in the formation of the United
Organization of Taxpayers (UOT). As the state chairman of UOT, Jarvis attempted
campaigns to limit property taxes in California in 1968, 1971, and 1976, each time
failing to collect the required number of petition signatures. During this eight-year
period, he also worked on measures in Los Angeles city and county, and he supported
Proposition 1 of 1973, an unsuccessful revenue limiting amendment pushed by
Governor Ronald Reagan. In 1978, Jarvis was finally able to surpass the threshold by 23
23 Jarvis failed to win the Republican nomination for US Senate in 1962. He later went on to run for
State Board of Equalization and for mayor of Los Angeles (Smith 1999).

collecting enough petition signatures to put Californias revolutionary Proposition 13
on the ballot. The initiative passed with 65% of the vote on the June 1978 primary
ballot. Over $2 million had been spent between the proponents and opponents of the
initiative (p. 174)
Another important player in the passage of Proposition 13 was Paul Gann, an
anti-tax activist and former salesman. Ganns organization, the Peoples Advocate,
joined forces with Jarvis prior to the 1978 initiative to help collect petition signatures
(Ibid). Though Jarvis and Gann did not extensively coordinate their efforts,
Proposition 13 came to be known as the Jarvis-Gann amendment by many. In the
years that followed, both Jarvis and Gann pursued additional tax limitation initiatives.
Ganns next idea came to fruition in November 1979 when California voters
approved Proposition 4, or the Gann Spending Limitation, with an overwhelming
74% majority (Hyink & Provost 2004). This proposition contained many of the ideas
that came to constitute TABOR in Colorado. Primarily, it limited the annual increase
in spending by state and local governments to inflation plus population growth, and
any excess revenues had to be refunded to taxpayers. This limitation continued until
1990, when California voters approved Proposition 111, which changed the limit on
spending growth to the increase in state personal income (Young 2006, p. 31).24
Compared to the metric of inflation plus population growth, the personal income
24 Two similar attempts to modify the restrictions of the spending limitation were rejected by voters on
the 1988 ballot (Hyink & Provist 2004).

metric allowed for greater flexibility in government spending to keep pace with a
growing economy.
Just one year after Ganns successful amendment passed, Jarvis collected
enough signatures to place a measure to reduce income taxes on the 1980 ballot, but
Proposition 9 was defeated by a three-to-one margin (Smith 1999, p. 206). Though
Jarvis died in 1986, his legacy survived in the work of the Howard Jarvis Taxpayers
Association, which successfully passed Proposition 218 in 1996. Proposition 218
repaired what was seen to be a hole in Proposition 13 by prohibiting local
governments from increasing certain kinds of assessments and property-related fees
without a vote of the people (California Legislative Analysts Office 1996).
While Jarvis was exploiting the political climate to advance his pet ideas,
members of the California legislature struggled to preempt Jarvis with a proposal of
their own. As the state legislature considered various actions to deal with Californias
mounting inflation problem, their choices were narrowed by the political landscape in
Kingdons original sense. Because the problem of inflation was most directly seen by
the public in their rising property taxes, it seemed counterintuitive to voters that
raising taxes to stop inflation would actually be the solution, and thus legislators
reasonably feared that they would be voted out of office if they offered such a
solution. The path dependency becomes clear in a counterfactual example. Had
President Johnson successfully acted ten years earlier to counter inflation by
increasing federal taxes or interest rates, the economic situation in California would

have been very different, and rising property taxes would not have been a major
concern. The choices facing the California legislature would have been very different
as well.
Another of the political factors was related to the perceived inability of the
state and local governments to address rising property taxes. In a broad sense, the
political process has to do with locating the nexus of power. In legislative politics,
this applies to election results and the perceptions of elected officials about which
policies might lead to their successful reelection (Kingdon 2011). Elected officials are
granted specific powers by the US Constitution and state constitutions, and are thus
granted specific resources with which to implement their policy ideas. While many of
these resources are available to all elected officials equally, some elected officials
carry more influence with others and are more able to advance their policy ideas.
In direct democracy, the power is in one sense held by the people themselves.
Under the assumption that voters are rational actors, voters are able to evaluate
available information and make decisions about their own best interest. However,
Kingdon points out the limitations of attributing such behavior to comprehensive,
rational decision making: The ability of human beings to process information is
more limited than such a comprehensive approach would prescribe. We are unable to
canvass many alternatives, keep them simultaneously in our heads, and compare them
systematically (2011, p. 78). This being the case, the true source of power in
determining outcomes in ballot initiatives lies with those that are best able to

persuade a majority of the population to vote one way or another. Those elite actors,
just like the legislators, would be more aware of the new economic theories than the
population as a whole.
Jarvis successfully integrated the political processes with the problem and
solution streams using his powers of persuasion. The stage had been set by the
dissemination of neoliberal ideas that together increased the perception that
government was unable to solve problems, and increased the legitimacy of ideas like
reducing taxes to stimulate economic growth. Jarvis first chose a policy idea that
resonated with this public perception of the problem. Second, he used populist
rhetoric to attract media attention, allowing him to advance his message and convince
voters that his idea would solve their problem. Third, he further advanced his
message using his financial and organizational resources.
Analyzing the multiple levels of the Californias economic problems, it can be
seen that Proposition 13 took a very direct approach at immediately relieving the
symptoms of the problem while not directly addressing the structural problem itself.
Proposition 13 provided a mechanism for reducing property taxes but did not put a
stop to the inflation of the property values. Furthermore, the reduction of government
authority over taxes was not directly connected to the inflation problem but was
instead latched onto the policy solution because of the neoliberal ideas about the
ineffectiveness of government, which were reinforced by the failures of the California
legislature to find agreement on a solution earlier.

A number of historical factors contributed to the conditions in California that
set the stage for Proposition 13, and different choices over the previous years would
have led to different perceptions of the problems in California, as can be seen in
counterfactual examples. If the federal government had raised income taxes and
interest rates to curb inflation in the late 1960s (or had not engaged in the inflationary
Vietnam War), it is likely that the inflation would have been somewhat limited and
thus the property taxes would not have been at the heart of the problem in California.
Alternatively, if local governments had acted and reduced property tax rates, a ballot
initiative would not have been necessary, and these governments would have retained
the ability to raise taxes again when revenue was short. Had Jarvis proposed a
different kind of solution such as an income tax cut (like the one that later failed in
1980), it would not have resonated in the same way with the perceived problem.
Most importantly, one must remember that a majority of citizens came by the
conclusion that rising property taxes were a problem only after Jarvis campaign
brought it to their attention. People do not naturally associate circumstances with
problems, and it was not at all clear that the rising property taxes were inherently
problematic. The effects of inflation were widespread, so it could have just as easily
been concluded that the problem was with insufficient income inflation to allow
people to pay these higher taxes. To Jarvis, however, the problem was clear. Had
Jarvis not used the populist rhetoric and financial and organizational resources to
disseminate a message advancing his own perception of the problem, voters might

have been more skeptical about the possible unintended consequences of this
particular initiative. Instead, Jarvis had successfully convinced Californias electorate
that rising property taxes were at the very heart of the problem, along with an
ineffective government, and he was able to link a very specific tax-reducing and
government-limiting proposal to this problem.
A rational actor model might suggest that it simply took time for the majority
of people to feel the impact of the rising property taxes, and once they did, they acted
to solve the problem. This approach may identify elements of the truth, but it falls
short of answering several questions, including why this problem was recognized as
the most significant, and how the proposed solution itself came to be. Kingdon points
out in his analysis of organizational structures that the process does not look like
comprehensive, rational decision making. People do not set about to solve problems
here. More often, solutions search for problems. People work on problems only when
a particular combination of problem, solution, and participants in a choice situation
make it possible (2011, p. 86). This organizational-structures theory is applied to
legislative politics with a concept of organized anarchy in which Kingdons three
streams of problem, policy, and politics interact in an unpredictable fashion, while
they are at the same time guided by the constraints of existing institutions. It is not
much of a stretch to see how this concept applies to direct democracy in addition to
legislative politics.

The history shows that the tax-limiting ideas in fact preceded the widespread
acceptance of the problem. This point underscores the importance of analyzing the
sequence of events. Both Jarvis and Reagan had worked on advancing policies to
reduce taxes and to reduce the power of government during the 1960s, yet it was not
until 1978 that the people of California decided that this kind of policy would solve
their problem. It is certainly possible that Jarvis and Reagan had simply become
aware of a growing problem before it caught on with the population at large, but
again, this theory does not definitively prove that the problem itself led to the specific
solution that was eventually passed. Furthermore, it does not examine the roles played
by Jarvis, Reagan, and the media in generating the specific public mood in the first
This oversight is also present in Smiths work, primarily because he focused
not on the origin of the public mood, but instead on the notion of organic versus
synthetic populism. Smiths underlying assumption is that the public mood was
directly tied to the material conditions of rising property tax rates. Smith correctly
notes that the interests of citizens in protecting their assets were indeed important
components of the public mood, but he also makes clear that there was no organic
populism in favor of a specific tax-cutting solutionthere was only the synthetic
populism that was generated primarily by Jarvis campaign. In other words, the direct
interests of the voters were not the primary drivers of their voting behavior, but it was
instead their perceptions of their material interests. By his efforts, Jarvis created

among the electorate a new perception about a problem affecting their material
Utilizing Blyths framework, we can trace the process to see the role played
by the proposed solution ideas. As economic conditions grew more difficult for many
people, much of the population grew uncertain about how their interests were being
met by the current policy direction. The existing economic paradigm, which had
seemingly provided stability and prosperity for years, no longer provided answers to
their questions. The fact that state and local governments experienced budget
surpluses under the inflated tax revenues and yet failed to act decisively to either
reduce inflation or provide tax relief reinforced the neoliberal ideas advanced by
Jarvis of government waste and of governments inability to solve problems.
Neoliberal policy solutions had been introduced in academia and were brought into
politics by Jarvis and Reagan in the 1960s, but they did not have sufficient
widespread appeal to allow them to be implemented in Californias political structure,
either through legislation or through initiative. With the persistence of the policy
entrepreneurs and their increasing ability to disseminate their message, the ideas
gained traction among more and more citizens, and by identifying these ideas as
solutions to their specific problems, their uncertainty about their interests was
reduced. This increasing perception enabled collective action, and set forth a process
of increasing returns. That the passage of a property-tax-reducing initiative appeared
possible facilitated fundraising for the proponents and also attracted more media

attention, which in turn disseminated the anti-tax message to an even broader
audience. The lack of action by state and local governments amplified the perception
that government was not capable of solving problems, and this perception fit very
well into the neoliberal ideas that had been developing in academia.
After multiple failures, the ideas had become more lucid, and the language of
Proposition 13 was crafted around the increasing agreement on the ideas. Jarvis and
the other proponents used these ideas as weapons to attack the status quo by
criticizing government inaction, and to advance their solution by mobilizing voters
against the government. Finally, the passage of Proposition 13 established new
elements of institutional stability that locked the new laws into place. In one
manifestation of this stability, the requirement of a two-thirds majority vote of the
people served as a significant roadblock to future changes.
In this example of institutional change in California, we have seen examples
of path dependency, the role of ideas, and the convergence of the three process
streams. In the subsequent analysis of Colorado in 1992, we will take a closer look at
the specific actors involved and the roles they played. The subsequent section will go
into substantial detail explaining the events in Colorado in the 1970s and 1980s, and
some of the factors at the national level that influenced the developments in Colorado.

Colorados Attempts to Preempt Revolution in the 1980s
At the same time that Californias property taxes were rising due to inflation
Colorado residents were experiencing similar economic difficulties.25 Cronin and
Loevy cite Bob Kirscht, a former state legislator from Pueblo, in describing the
legislative politics of taxation in the 1970s as follows:
[I]n the mid 1970s Colorado had a large budget surplus and a progressive
state income tax that produced income for the state in good economic times
and bad. In the late 1970s, however, the legislature became embarrassed over
running such a large surplus and began looking for ways to win votes by
returning some of the money to state voters in the form of tax cuts. Kirscht
explained: What followed in 1978, 1979, 1980 and 1981 was a deluge of
tax-cutting legislation that swept billions of dollars from collections and
obliterated the progressive tax system that had been devised more than a
decade earlier to produce the reserves that Colorado had accumulated by the
late 70s. In addition, Kirscht noted, the legislature began exempting more
and more goods from the state sales tax and passed a number of property tax
rebates (1993, pp. 199-200).
Contrary to the inaction of Californias legislature, the Colorado General Assembly
certainly acted to modify the tax structure and to limit government spending in the
late 1970s, and the neoliberal ideas were beginning to show their influence. Included
among the new statutes passed in the late 1970s was Colorados first spending limit.
Sponsored by Democratic State Senator James Kadlecek in 1977, the Kadlecek
25 As a side note, Republicans held majorities in Colorados legislature for most of this period with a
few exceptions. In 1964, Colorados electoral votes, like Californias, went to Lyndon B. Johnson over
Barry Goldwater, and Democrats won the majority in the Colorado House of Representatives (Cronin
& Loevy 1993, p. 157). In 1966, this tide was reversed and Republicans regained control of the State
House while maintaining their majority in the State Senate. The Democrats again won the House in
1974 in the wake of the Watergate scandal, but lost their majority to the Republicans again in 1976.
Republicans maintained their majority in the House until 2004, and except for the two year period
from 2001-02, they maintained their majority in the Senate as well. While they were certainly
dominant in the state legislature for a long period, Colorado had a Democratic governor for 24 straight
years from 1975 through 1998.

Amendment limited the state general fund appropriations to an annual increase of
7% (Straayer 2009).
Several factors were in play in the late 1970s and early 1980s, and the
legislative actions and constitutional amendments passed during this period had long-
lasting impacts. Much of the subsequent analysis of these events is informed by three
interviews I conducted in the summer of 2010. Two of these interviewees, Ron
Stewart (D-Longmont) and Dennis Gallagher (D-Denver), were in the State Senate
during the late 1970s and early 1980s. The third, Terry Phillips (D-Louisville), served
in the State Senate in the late 1990s, but had previously served as the Boulder County
Assessor from 1989-1997.
During the 1970s in Colorado, as in California, the inflation on residential
property had resulted in increasing property taxes for homeowners, particularly in the
more affluent counties where property values were growing more rapidly.
Furthermore, concern was growing over the disparities between counties in
assessment of property value, particularly with regards to the impacts on funding of
public schools. Since 1935, funding for public education had come from a
combination of local property tax levies and state funds (Lujan v. Colorado Board of
Education 1982). Beginning in 1952 with the first Public School Finance Act,
additional state funds were provided in an attempt to equalize per-pupil spending in
each district. Disparities continued to exist, though, in part because some school
districts did not raise sufficient revenues, and in part because the state did not provide

sufficient funding to truly equalize per-pupil spending. These issues with school
finance and property taxes had put in place a set of conditions that led to a specific
understanding of Colorados problems during this period, and opened the door for the
policy solutions that followed.
Part of understanding the events that follow requires an understanding of how
property taxes are designed in Colorado. Two different rates are applied as multipliers
to the actual value of the property: the assessment rate and the mill levy. The
assessment rate is the percentage of the property value that is considered taxable.
Thus, for a $200,000 property and an assessment rate of 20%, the assessed value is
$40,000. Property taxes are charged on this assessed value, and assessment rates vary
for different kinds of property. The second rate is the mill levy, which is essentially
the annual tax rate uniformly applied to the assessed values of both residential and
commercial properties. So, a mill levy of 5% would be applied to the assessed value
of $40,000, and the annual property taxes would be $2000. To reduce property taxes,
either the assessment rate or the mill levy can be decreased.
In 1982, the Colorado legislature sent a referendum to the voters that would
have long-lasting impacts on state and local revenues, especially when later combined
with 1992s TABOR amendment. Amendment 1 of 1982, often remembered for one
component known as the Gallagher amendment, was adopted by the voters with a
65% majority (Colorado Ballot History 2010). The primary impacts of the
amendment were to set uniform standards for regularly reassessing actual property

values across the counties, to require a specific ratio of residential to commercial
property assessed values, and to exempt business inventory from property tax.
A Different Kind of Problem in Colorado
According to Senator Stewart (D-Longmont), The whole thing around the
constitutional amendment on property taxation was a response to enormous
outpourings of public sentiment against property tax increases... When we had the
reassessments that really started for the first time to demonstrate the enormous
inflation in the value of residential property, the people went ballistic.
While this public anger had not congealed into a populist movement, these
perspectives were certainly voiced in town hall meetings and other communications
with legislators. Having recently witnessed the passage of Proposition 13 in
California, Colorados General Assembly paid attention. This response demonstrates
a key element of path dependency as the recent history in California informed and
motivated Colorados key decision makers. As Senator Gallagher (D-Denver) puts it,
the constitutional amendment was one of the solutions to keep Proposition 13 from
coming to Colorado. While many of the people of Colorado may not have been
paying close attention to the events in California, the Colorado General Assembly
was certainly wary of the potential consequences of any number of tax-limiting ideas
that might be shaped into an initiated amendment, including a direct reduction in
property tax rates or a homestead exemption. The Republicans in the legislature were

particularly worried about the potential tax-shifting to businesses that might occur if
residential taxes were dramatically reduced. Thus, explains Senator Stewart (D-
Longmont), one of the motivations for passing the amendment was to head off
something more extreme than they themselves would propose. Furthermore, there
was widespread recognition that counties had not been uniformly assessing property,
and in some cases counties had not reassessed property values for up to fifty years.26
Those counties in turn were collecting more equalization funds from the state under
the Public School Finance Act. There was a genuine sense in the legislature that [the
uneven assessments] needed to be stopped, that you needed to level the playing
An Idea to Head Off a Tax Revolt
As the amendment was crafted, numerous interest groups interjected their
views, including agricultural interests wanting to maintain many of their special tax
breaks and business interests wanting to eliminate the property taxes on inventory.
Because this law, if approved by the voters, would be written into the constitution, the
specific benefits would be locked into Colorado law for years to come. However, the
crucial elements of the amendment were based on the assessment standards that
would require compliance throughout the counties. In order to deal with the specific
26 One of the reasons that Californians felt the impacts of inflation earlier than Coloradans was that
California had adopted a system of frequent property reassessments in the 1960s, while Colorado still
had no uniform system in place (Blyth 2002, p. 161). Californias earlier adoption of uniform
assessments is thus another element of path dependency.

issue of residential property taxes, the Republican-dominated legislature proposed a
set of uniform assessment rates. For residential properties, the assessment rate would
be 21%. For all other properties, it would be 29%. The three Democrats on the Senate
Finance Committee, Ron Stewart, Barbara Holme, and Dennis Gallagher,27 expressed
concern that the 21% set rate would be problematic under continuing inflation, and
because the rate would be written into the constitution, no legislative action would be
able to make adjustments in the future. Thus, they sought to amend the bill to allow a
floating assessment rate on residential property. The mechanism by which these rates
were determined has come to be known simply as the Gallagher amendment.
The Gallagher amendment required that the portion of statewide property tax
revenues that come from residential property could not exceed 45% of the total.
Meanwhile, the commercial assessment rate was locked at 29%. In the years since the
passage of the amendment, residential properties continued to increase in value more
rapidly than commercial properties, and thus the Gallagher mechanism has forced the
residential assessment rate to be reduced to maintain the 45% ratio. Currently, the
residential assessment rate is set at 7.96% (Colorado Constitutional Provisions 2010).
27 Stewart was also serving as the Senate Minority Leader at the time.

The Legislative Route to Property Tax Reform
While Republicans were concerned about the long-term potential impact on
business, they accepted the amendment offered by Stewart, Holme, and Gallagher to
get the much-needed support from at least a few Democrats, since the law requires a
two-thirds majority in each chamber for an amendment to be referred to the voters,
and the Republican majority alone did not hold two thirds of the seats in either the
House or the Senate.
Working together, the Democrats and Republicans were able to address the
concerns of the people about their rising property taxesa feat that had not been
accomplished by the California legislature just a few years earlier. The agreement on
the specific problem had been solidified by the observation of the events in
California, and the solution came about through a series of legislative constraints.
Furthermore, by passing the Gallagher Amendment, Colorado was able to mollify
voter anger enough that no opportunity existed for a policy entrepreneur to propose
(much less successfully advance) something similar to Californias Proposition 13.
Kingdons theory can be largely applied as originally constructed to make
sense of the passage of Amendment 1 in 1982, since the primary decisions were made 28
28 As Senator Stewart explains, In areas where the increase in residential value is not as great as the
average statewide increase, [the reduced residential assessment rate] means a reduction in taxes that
local governments can take and a reduction in money available for schools from the local fund. In
such cases, two consequences followed. First, additional state funds were sometimes required under
the Public School Finance Act. Second, local governments were able to raise the mill levy to recover
the lost revenue, but because the commercial assessment rates remained at 29%, businesses were
paying a larger share.

in the legislature. Just like California, the problem stream was related to the effects of
inflation on property values, but in Colorado this problem was compounded by the
inconsistent methods of assessment used by the various counties and the particular
constraints of Colorados extant school finance laws. The policy stream consisted of
the set of ideas that integrated the concerns of many different interests into
Amendment 1, and path dependency is evident in the narrow range of choices
available. The political stream was defined by the Republican majority and the two-
thirds majority requirement that enabled Democrats to include some of their own
ideas in the language.
Blyths approach to analyzing the influence of ideas also appears here. While
the debate over the amendment was not particularly ideological, there was certainly a
widespread agreement among the General Assembly that a reduction in residential
property taxes was both fair and reasonable, and it was this idea that reduced
uncertainty and enabled collective action. As in California, the idea of increasing
taxes to curb inflation had basically been discredited, both because the time to do so
would have come a decade earlier and because the anger over property taxes made it
politically impossible to attempt such an approach in 1982.
However, anti-government sentiment in Colorado had not yet risen to the
levels of California, perhaps because Colorados legislature had learned the lesson of
California by acting to reduce property taxes. By acting, the General Assembly
managed to maintain a larger portion of its authority than Californias legislature, and

while local government was somewhat restricted by Amendment I, it maintained
much more flexibility than Californias local governments under Proposition 13.
My discussion with former Senator Phillips (D-Louisville) revealed many
details about the implementation of the new residential assessments, which were
phased in over a number of years to provide a cushion for counties that had been
using older property values. According to Senator Phillips, the most significant of
these reassessments came in 1987 when actual values were updated from 1977 values
(where they had been set in 1983) to 1984 values, and thus catching the entire
inflationary impact of the late 1970s on the tax bills that came out in January of 1988.
In theory, the Gallagher amendment would then reduce the residential assessment rate
to compensate for the new home values. However, as Senator Phillips further
explained, a few factors diminished this compensatory effect. First, the new
residential assessment rate was miscalculated because of incomplete data. While it
should have been reduced to 16%, it was instead reduced to 18%. This discrepancy
accounted for a 13% increase in the taxes over what they should have been. Second,
different areas were experiencing different rates of property value inflation, and
because the new assessment rate represented a statewide average, the properties in
more affluent communities undergoing more substantial inflation did not receive as
much of the benefit of the reduced assessment rate as others.
All together, the cumulative effect was that residential property taxes
increased substantially for most people in 1988, and even though this increase was

less that it would have been without the Gallagher amendment, it came as a surprise
to many. According to Senator Phillips (D-Louisville), the passage of the Gallagher
amendment in 1982 had given people an impression that taxes wouldnt go up. At
the same time, Colorado was going through a recession. The unexpected continuation
of property tax increases revived the anger over taxes amid a recession and reinforced
the view that government did not work.
The Reagan Revolution
The ideas represented by the property tax limitations in California and
Colorado were hardly the direct spawn of a neoliberal agenda, but the statements and
actions of the proponents were informed by neoliberal ideas and frames. In particular,
the campaign rhetoric in California clearly exhibited the idea that government had
failed to solve a major problem of the time, and among the political leaders who had
studied the new economic theories, this growing perception of government as
dysfunctional surely reinforced their adherence to the theories themselves. At the
same time as these changes were happening in California and Colorado, the federal
policy landscape was also experiencing major changes. Tax reform policies under
Presidents Jimmy Carter and Ronald Reagan would both serve to further discredit
Keynesian economics while advancing neoliberal ideas. 29
29 Furthermore, Carol Hedges, Director of the Colorado Fiscal Policy Institute, noted during our
interview that the short-lived oil shale boom in the late 1980s also contributed to rising property

An Unfair Tax System
By the end of the 1970s, all of the economic problems of the previous two
decades came together in a way that enabled radical changes in federal tax policy.
First, agreement over the inflation problem had grown more widespread, and rather
than addressing the symptoms (such as increased property taxes at the state level), it
was thought that a federal solution was required to put an end to the inflation itself.
Second, political candidates increasingly highlighted the problem of deficit spending
that had continued beyond the Vietnam War into the Ford administration. In part
because of the political tactics used by candidates in the 1976 presidential election,
the concern over deficits became linked to the inflation problem. Third, the tax
system as a whole was thought to have failed to achieve the goals of equity,
universality, and efficiency. Much of the objection to the existing tax system was that
the tax expenditures designed to encourage certain social goals had fallen short of
achieving their desired ends and instead simply gave away money to special interests.
Instead, the great array of tax expenditures had the specific effect of complicating
tax codes, making it easier for sophisticated taxpayers to avoid paying taxes, and,
finally, radically reducing taxes for some taxpayers (Steinmo 2003, p. 216). The
specific combination of these three problems, which had largely been enabled by the
failure to curb inflation through higher taxes and to eliminate the poorly functioning
tax exemptions over the previous decade, narrowed the range of choices for new

Tax Cuts Become the Only Solution
Just as in California and Colorado, the Keynesian solution to the inflation
problem (raising taxes or increasing the discount rate) had become politically
impossible because of the simultaneous concerns of deficit spending and inflated
costs to consumers. The previous decades had borne witness to dueling cognitive
paradigms. While Keynesian economics was widely accepted in academic circles, the
policy community was more heavily influenced by the commitment to maintain
funding for both the Vietnam War and domestic spending programs and tax
expenditures with social goals in mind. Blyth, quoting Rowen, explains that President
Johnson had refused to propose tax increases to curb inflation out of the belief that if
Congress had to choose between guns and butter, it would cut back on the butter
(2002, p. 130). In other words, Johnson feared that his Great Society programs would
suffer in order to continue funding the war. The political calculations trumped the
economic arguments for raising taxes in Johnsons time, and thus the Keynesian
economic paradigm had been eroded in policy circles.
With no clear solution to solve the major economic problems at the end of the
1970s, public uncertainty increased. Unsure how to advance the public interest, policy
makers began to turn to neoliberal ideas, which seemed to offer guidelines for future
government action. The neoliberal ideas expounded that government use of active
fiscal policy was unable to bring about economic stabilization, and thus the
government should instead focus on removing its influence from the private sector.

Tax cuts and deregulation were thought to allow the private sector to bring about
recovery, and the concerns over deficits were surmounted by Laffers highly-
contested argument that the new economic growth would more than make up for lost
revenues. Neoliberal economic ideas had synthesized a solution that was theorized to
simultaneously address inflation, the unfair tax system, and high federal deficits.
The Acquiescence of the Left
During the 1976 Democratic presidential primary campaign, Jimmy Carter,
who had just completed his term as governor of Georgia, had taken the lead by
winning several early primaries and caucuses. Late in the race, Californias Jerry
Brown entered and challenged Carter from the left as part of the Anybody But
Carter movement (Time 1976; PBS 2010). As Brown, Carter, and the other primary
candidates sought to outdo one another in criticizing Republican incumbent Gerald
Ford, criticism of federal deficit spending came to the forefront. Blyth explains that
Brown berated President Gerald Ford for creating deficits and supported moves for a
constitutional amendment to balance the budget. In an attempt to outflank Brown,
Carter adopted the deficits cause inflation argument (2002, p. 166).
While this argument worked well for Carter, who easily defeated Brown and
then Ford, his use of this argument locked him into a narrow set of policy choices in
the years to come. As discussed earlier, the failures of Presidents Johnson and Nixon
to raise taxes to fund the Vietnam War had contributed to inflation, but there was no

real evidence that the deficits themselves were responsible for inflation (Ibid., p. 167).
Instead, the inflationary pressures came from the printing of money to spend on
something that had no multiplier effect on the US economy. Regardless, Carters
acceptance of this principle reinforced the neoliberal idea that inflation was a more
significant problem than unemployment and paved the way for the rise of monetarism
at the Federal Reserve.
At the same time, Carter extensively criticized the increasingly unfair tax
structure, particularly with regards to special exemptions such as tax-deductable
three-martini business lunches (Ibid., p. 161). Tax reform was on Carters agenda
from day one, and with the awareness of the growing tax revolt in California,
Congress began to prioritize tax reform as well. Carters proposal, unveiled during the
l A
summer of 1977, sought to eliminate many of these special exemptions (including
5 1
the capital gains preference ) to fund a middle class tax cut, and catering to business
interests, provided for a cut in the corporate tax rate as well (Kantowicz 1985; Blyth
2002). Carter sought numerous compromises to get the votes needed to pass the bill,
but he continued to face objections from many, including those that argued from a
supply-side perspective that the capital gains preference should be maintained. Blyth
outlines the rise of supply-side theories that were used to justify the reduced capital 30 31
30 Carter had previously signed into law a minor tax reform bill in May 1977 (Kantowicz 1985).
31 With the goal of incentivizing business reinvestment, income from capital gains was previously
taxed at a lower rate than income from wage labor.

gains tax and the synthesis of a handful of specific economic ideas into the Laffer
curve which then served as a unifying idea to attack embedded liberal institutions
(2002, p. 165). After this proposal became bogged down in legislative morass, Carter
proposed a fresh start in January 1978. This time, however, he had compromised on
the capital gains preference as well as the exemption for three-martini lunches.
Furthermore, the awareness of the recent passage of Proposition 13 in California hurt
the cause of bold reform, and the final bill was significantly weakened. Despite calls
to veto the bill from many Democratic Senators, Carter quietly signed the bill
without any fanfare over the weekend just before the November 7 elections
(Kantowicz 1985, p. 229). While Carter had identified a problem and proposed a
solution, neither quite fit the politico-historical conditions in a way that could truly
open a policy window for major change.
In the broad sense, Carters acceptance of these kinds of policy ideas was the
fatal blow to the dominance of Keynesian economics. By effectively endorsing this
new set of ideas, Carter moved the Democratic party further to the right, thus shifting
the Overton window32 33 and marginalizing those that continued to advocate the theories
32 Blyth argues that this battle was won primarily in the political arena, as the economics profession
itself regarded the supply-side thesis with disdain and by and large ignored it (2002, p. 164).
Investments by business interests in think tanks had created new research to justify a wide range of
new ideas about tax policy, and the influence was so great that it even penetrated the nonpartisan
Congressional Budget Office.
33 The Overton window represents a range of politically possible choices which often represent a
shifting public mood that can be validated by the actions of political figures (Lehman 2010).

of Keynes. In the decade that followed, this shift was further seen in the compliance
of the Democratic Congress with the policy ideas of a Republican president.
This president, Ronald Reagan, had been a proponent of neoliberal logic since
the early 1960s with his support for Barry Goldwater and his tax reform proposals in
California. Drawing on the public sentiment that the tax system had grown unfair and
looking to reverse policies perceived to have contributed to the inflationary crisis,
Reagans 1980 campaign was largely focused on his economic platform, which
consisted of tax cuts and deficit reduction, but as Steinmo points out, it was not
entirely clear whose taxes he intended to cut or how he planned to reduce the deficit
(2003). One detail was revealed in a campaign promise in June of 1980 that he would
call for an across-the-board reduction of personal income taxes by 30%.
The preponderance of economic problems combined with the perceived
failures of the Carter administration certainly created a policy window for Reagan to
introduce new policy ideas. Reagan thus served as the most significant policy
entrepreneur in this period by linking his neoliberal solution ideas to the well-
established problems of the time, and he mobilized his political power to pass two
different tax reform bills during his presidency.
Going beyond Carter, Reagan drew much more overtly on neoliberal ideas,
and in the tax policy arena, he openly embraced supply-side economics by advancing
the Lafferite argument that cutting taxes would stimulate enough economic growth to
actually increase revenues (Ibid). Reagans first tax reform bill, the Economic

Recovery Tax Act of 1981 (ERTA), passed before the end of his first year. With this
new law, Reagan indeed successfully cut (some) taxes and reduced domestic
spending, but the result neither addressed the deficit nor the perception that the tax
system was unfair; in fact, the new law exacerbated both problems.
The course of Reagans actions had been influenced throughout the process by
the neoliberal economic theories, and during the discussions of the economic
recovery program, rational choice and supply-side theories came to trump the
campaign promises for middle class tax cuts and deficit reduction. Focusing first on
the inflation problem, Blyth cites Greider in explaining Reagans approach to
resolving the problem painlessly (in other words, without raising taxes). According to
Greider, Reagans policy team drew on rational expectations theory to conclude that
the commitment to a three-year reduction of the income tax, coupled with tight
monetary control, would signal to investors that a new era was dawning (Blyth 2002,
p. 174). Thus, if the President acted boldly, it would alter the psychological climate
surrounding these economic problems, leading to a reversal of the inflation (Ibid.).
Furthermore, supply-side theory was introduced to restore economic growth through
tax cuts, especially for businesses. Contrary to the campaign promise of across the
board tax cuts, Reagans tax reductions were unabashedly regressive (Blyth 2002,
citing Weatherford & McDonnell, p. 178), and combined with the scheduled rise in
Social Security payroll taxes, the actual ratio of tax paid on income rose for the

bottom 40 percent of the population and fell for the top 60 percent (Blyth 2002,
citing Meeropol, p. 178).34
Finally, to counter the concern over deficit spending, Reagan relied on the
Laffer curve, which he viewed as a grand unifying theory (Blyth 2002, p. 176).
Reagans tax cuts were theorized to significantly boost private investment, thus
leading to higher incomes across the board and in turn higher tax revenues. Over the
four years following the enactment of ERTA, however, the deficit increased by well
over $100 billion per year (Steinmo 2003). The combination of domestic spending
cuts along with any growth that may have been stimulated by the tax cuts was not
enough to offset the combination of increased military spending and reduced
government revenues from the tax cuts.
Continuing the trend begun by Carter, Congressional Democrats in the 1980s
conceded any ground they had once held. Blyth points out that Democrats were
desperate to recover from the defection of business support they endured in 1978 and
1980, and so they eagerly engaged in a bidding war with the Reagan
administration to offer the most beneficial pro-business proposals (2002, p. 176). As a
result, the financial cost of this give-back to business was enormous (Ibid., p. 177),
thus significantly adding to the deficit problem. By participating in this highly
politicized process, Democrats had fully abandoned any claims of intellectual
credibility left from the Keynesian era.
34 The new reductions ranged from 3% for annual incomes under $5500 to 20% for annual incomes
over $215,400. The median bracket saw a reduction of only 7% (Pechman 1983).

Making matters worse, Steinmo argues, ERTA made the US tax system even
more complicated and unfair than it had been during the 1970s (2003), only
exacerbating the public lack-of-trust in government that would soon contribute to the
political moment in which TABOR passed in Colorado. The continuation of tax
expenditures designed to promote specific policy goals decreased the efficiency of
government spending, and Steinmo quotes Aaron and Galper in pointing out that the
credits, deductions, and exclusions designed to help particular groups or advance
special purposes conflict with one another, are poorly designed and represent no
consistent policy. The tax system causes investors to waste resources on low-yield
investments (p. 218). In the remaining years of Reagans first term, protest over this
unfairness only grew, and thus the Reagan administration began thinking about the
next tax reform bill it would advance. This new bill became the 1986 Tax Reform Act
As Steinmo explains, what eventually passed [in 1986] was remarkable. Tax
rates were lowered for most individuals and corporations, and this was financed
largely by the elimination of hundreds of tax expenditures/loopholes. Though
marginally regressive, the distribution of these cuts was mostly proportional to
income (2003, p. 219). Steinmo goes on to argue, however, that this new tax law was
considered fair only in comparison to the system established after Reagans first 35
35 Considering that tax expenditures were originally thought to be more efficient ways to incentivize
certain activities (since taxes would not have to be collected and then spent), the inefficiencies
resulting from the overuse of tax expenditures formed another argument against government
interference in the economy.

attempt, ERTA in 1981, which had made the tax code radically more inefficient,
complex, and unfair than it had been only five years earlier (Ibid). Nonetheless, the
abolition of so many tax exemptions represented the final stage of the major
ideational shift in American politics, effectively reversing the very idea that tax
policy could be used to accomplish social ends. The notion of redistribution of wealth
joined Keynesian ideas at the periphery of economic thought, and it instead became
mainstream to focus fiscal policy exclusively on maintaining overall economic
growth. Returning to the three concepts of equity, universality, and efficiency, the
new policy direction represented a victory for efficiency over equity.
Ronald Reagan was a policy entrepreneur who was able to capitalize on the
anti-government public sentiment by showing that government was inefficient and
unable to solve problems, and then proposing solutions that relied on dramatic tax
cuts and downsizing of government. It must be understood that this decision was
neither a cold-hearted political calculation nor an explicit attempt to benefit business
interests. Instead, the neoliberal economic theories had justified these policies by
reinforcing a view that governments attempts to solve social problems had only
made things worse, and that the best course of action for all people was to maximize
their liberty and allow them to pursue their own interests in their own way. Blyth
argues that the supply-side revolutions solutions may have been economically
dubious at best, but these ideas did successfully diagnose uncertainties, identify
causal relationships, encourage new patterns of collective action through the re-

narration of interests, and advocate alternative institutional solutions to the crisis in a
way that the defenders of embedded liberalism could not do (2002, p. 166). Steinmo
shows that these ideas soon spread to much of the developed world, as many
countries followed the American lead by reducing income tax rates particularly at the
upper margins and eliminating numerous exemptions. There was a growing
consensus that the high levels of progressive taxation had failed, and Steinmo argues
that governments believe[d] they [could] no longer effectively manage or control
private economic decision-makers through the tax system (2003, p. 224).36 Just as
these neoliberal ideas spread throughout the developed world, they also spread within
the US and added to the existing concerns about taxes and government
ineffectiveness in states like California and Colorado. In Colorado, these ideas guided
the policy solutions that came to be included in the TABOR amendment and helped
rally support for it.
36 Steinmo also examines the decreasing emphasis on the concept of ability to pay that occurred in
many capitalist economies in the late 1980s. While the perception of unfairness of the tax system was
mostly based on the feeling that too many rich interests were getting special deals, the resulting
changes did not increase the progressivity of the tax code. Steinmo states that tax reforms could have
cut out the inefficiencies and increased the progressivity of the tax systems, but in no case that I am
aware of did this actually occur (p. 225).