If Proposition 55 passes, the state budget will rely even more on California's highest earners

Paul Taybi is part of the 1.5%. 

The 59-year-old retired founder of a data analysis company from El Cerrito is among that percentage of the wealthiest Californians paying the higher income tax rates that voters approved four years ago.

Now, with those rates set to expire, a coalition of teacher and service worker unions, medical groups and others are pushing Proposition 55, a ballot measure that would extend these higher taxes on the the highest earners through 2030.

Taybi isn’t happy about it. He said he plans to raise rents in the four Bay Area properties his family owns and ultimately move out of state in the coming years if the measure passes.

“I have no problem paying more taxes than a poor person does,” Taybi said. “But we’ve reached the point where my behavior has changed. It will change more. And a lot of people like me will say, ‘That’s the straw that broke the camel’s back.’” 

If voters approve Proposition 55, the state will continue depending on Taybi and other wealthy Californians to fund a significant portion of schools, parks, road repairs, police, prisons and many other government services. Those paying the higher rates, which kick in for single and joint filers making more than $263,000 and $526,000 a year respectively, contributed almost $34 billion in income taxes in 2014, roughly a third of all state general fund revenue. 

California’s reliance on the wealthiest taxpayers means the state is especially vulnerable to their bottom lines.

When presenting this year’s revised budget plan in May, Gov. Jerry Brown carried with him a chart titled, “Unpredictable Capital Gains,” noting how the state’s revenues were highly dependent on booms and busts in the economy. California’s finances, he said, are a “zig-zag reality.”

“In order to manage this budget,” Brown said, “it's like riding a tiger.”

In the same presentation, Brown estimated that if Proposition 55 didn’t pass, the state would have a budget deficit in the next three years, which could lead to a new round of cuts in education, health and social services programs.

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Though much more muted than before, the basic message is the same as it was in 2012.

Back then, the state remained at the height of a prolonged budget crisis. Brown and other proponents warned of massive cuts unless voters passed Proposition 30. The measure primarily raised income tax rates by 1% to 3% for the wealthiest taxpayers.

Under Proposition 30, the current tax rate is 10.3% for single filers earning between $263,000 and $316,000 in annual taxable income, 11.3% for those between $316,000 and $526,000, 12.3% for those between $526,000 and $1 million and 13.3% for those earning $1 million or more. The final 1% at the highest tax rate goes toward a mental-health fund that’s been recently retooled to pay for a $2-billion bond to help house the homeless.  

Brown and other supporters pitched Proposition 30 as a Band-aid to carry the state through the worst of its financial calamities. Those higher income tax rates are set to expire in 2018. If Proposition 55 passes, the higher rates would be in place for 18 years. 

The governor hasn’t taken a formal position on Proposition 55 and maintains he could balance the budget with or without it.

“I said it was temporary when I started, when I got Prop. 30 passed — I helped to pass it — and I think I’ll leave it there,” Brown said at the May budget presentation.

Some high earners who voted for Proposition 30 now say they’re opposed to the new measure because they were promised that the tax hikes would expire.

“I’m just incensed because I feel like a sucker,” said Martin Schwartz, 63, an electronics repair store owner in Chatsworth, who has paid the higher rates.

But supporters of the measure argue that the state’s still shaky revenues justify continuing to tax those in the top income brackets at higher rates.

“Have we stopped bleeding since 2012? Yes, but the problem still exists,” said Shay Lohman, president of the teacher’s union in the Rowland Unified School District in Los Angeles County. “The wound is still there.”

Increased tax revenues have also brought significant benefits. Since Proposition 30 passed, Lohman’s district brought back an elementary school music program that had been cut during the recession and is planning to start a dual-language Mandarin-English program next year, he said.

 “Money has allowed something like that to happen,” Lohman said.

Though the income tax provisions are the same, Proposition 55 has some differences from Proposition 30. The new initiative does not extend a quarter-cent sales tax hike set to expire at the end of the year. It directs more of the money to the state’s Medi-Cal healthcare program for low-income residents. The measure will raise $4 billion to $9 billion a year, depending on the economy and stock market, according to the nonpartisan Legislative Analyst’s Office.

The campaigns for Propositions 30 and 55 are different as well. Four years ago, business and taxpayer groups mounted a robust effort, spending millions, including running television advertisements, to oppose the tax and support a second, unrelated ballot measure.

This time, opponents have only raised $3,000, according to the state campaign finance reports, while supporters have collected almost $53 million, primarily from the California Assn. of Hospitals and California Teachers Assn. 

In pro-Proposition 55 television advertisements, advocates including state Controller Betty Yee argue the measure will prevent education cuts without raising taxes.

A USC Dornsife/Los Angeles Times poll last month found 57% of registered voters were in favor of the measure. The poll even found support from a majority of those making more than $100,000 a year. 

liam.dillon@latimes.com

Follow me at @dillonliam on Twitter

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An earlier version of this story incorrectly stated that Paul Taybi owned four Bay Area apartment complexes. The rentals are single-family residences.
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