California’s finances were in such trouble in the not-too-distant past that by 2009, even many tax-shunning Republican lawmakers were pleading with their constituents to temporarily increase sales, income and vehicle license taxes.
Voters said no repeatedly, until Gov. Jerry Brown offered them this deal in 2012: Take just four years of higher sales taxes, and a mere six years of higher income taxes on the well-to-do, and we’ll finally be out of the structural budget mess that has dogged the state for the better part of two decades. We’ll have the breathing room to plan how we move into the future — perhaps, some advocates said, by redesigning the state’s outdated tax code, which makes California far too subservient to Wall Street and far too dependent on the whims and fortunes of wealthy investors.
Then the increases will expire and we won’t have to renew them.
Or don’t do it, Brown said, but know that the state then will have to make a host of pre-approved “trigger cuts” in education and other crucial services.
Californians finally said yes to tax increases four years ago in the form of Proposition 30. It was the right decision, and it made the Legislature’s primary job for the last four years to get ready for the measure’s expiration — by doing the unglamorous but fundamental work of updating state tax laws or figuring out some other way to get revenues to match the state’s wants and needs.
But lawmakers didn’t do that. They didn’t even try — because they knew that big political players would relieve them of any accountability by creating a cop-out initiative like Proposition 55, which would simply extend the higher income taxes another 12 years into the future.
After that happens, Proposition 55’s proponents now tell us, things will be different. Lawmakers will really have the breathing room to get serious about tax and budget reform and will design a fairer and more stable tax system.
Nonsense. If Proposition 55 passes, lawmakers will have no reason to do any of that work at all. It’s hardly a coincidence that the tax extension would last 12 years — the maximum allowable time anyone can serve in the Legislature. That means not a single person now sitting in the Assembly or Senate, nor anyone elected this November, will have to deal with California’s next fiscal cliff.
That’s bad planning, bad thinking, bad budgeting and cowardly politics. Proposition 30 put California back on its feet, and now it’s time to move forward. The Times urges a “No” vote on Proposition 55 and its longer, but still temporary, tax increases.
The measure would allow the higher sales tax to expire at the end of this year but would continue higher income taxes on top earners that otherwise would expire in 2018: 1% on annual earnings over $250,000 for individuals and $500,000 for couples, then 2% on higher amounts and finally 3% on the highest earners, in addition to the previous top marginal rate of 9.3%.
On first blush, that may sound great to a majority of California voters — and that’s surely what proponents were thinking. Why worry about the rich? They can afford it.
But that means hitching California’s wagon — and its revenue for schools, healthcare and other programs — to the investor class and others whose annual net incomes rise and fall with the vicissitudes of Wall Street, even as they keep their personal wealth intact and out of the reach of income taxation. California’s schools got a windfall in 2006 merely because a handful of Silicon Valley investors switched their holdings and had to pay a lot in taxes. Two years later, schools and the state approached insolvency because investors were having a bad year.
California must be able to rely on a mix of revenue, and yes, that includes progressive taxation of wealth, but it also must include steadier and more predictable sources to help the state survive stock market dives. Instead of backing the state away from that dangerous revenue volatility, Proposition 55 ensures that we will be more tied than ever to Wall Street.
There also is the very real concern that if California increasingly relies on only its wealthiest people, they will take their money elsewhere. Critics argue that the wealthy pay far less in taxes today than they would have a half-century ago, and that may well be true. But the more useful comparison is between the California of today and its counterparts with lower income taxes. Nevada, Washington and Texas have no state income taxes and are a constant lure to wealthy Californians looking for more affordable places to take their businesses, payrolls and investments.
A tax structure that depends too heavily on a small group of people, however wealthy they may be, also presents an insidious social and political problem. When a majority of people provide a substantial portion of the state’s revenue, there is a broader demand for accountability and a greater incentive to vote. But when only a few provide most of the revenue, the majority loses not only its incentive to demand results, but its leverage to do so.
The tax system that Proposition 55 locks in place until 2030 is fiscally, politically and socially unsound, and voters should reject it and demand that the Legislature produce something better.