Capitol Journal: Prop. 55 feeds voter cynicism by extending a ‘temporary’ tax hike on the rich
Proposition 55 would extend income tax hikes on the state’s highest earners until 2030.
When politicians backpedal on their word — bait and switch and play voters for suckers — they further erode public confidence in our democratic institutions.
That provides footholds for populist demagogues such as Donald Trump. It feeds cynicism and distrust of government. And we’re indisputably in an era of national distrust.
But this column is not about the Republican presidential nominee. It’s about California Democratic politicians and their bankrolling patrons, especially teachers unions.
Specifically it’s about their shameless sponsorship of Proposition 55 on the California ballot in November. That initiative would extend Gov. Jerry Brown’s so-called temporary income tax increase into virtual permanency, at least for 12 years.
A brief refresher course here:
Brown, teachers unions and other labor groups sold voters on the original “soak the rich” tax hike, Proposition 30, in 2012. It made lots of sense — back then.
It was to be temporary, Brown and the tax advocates pledged repeatedly. And they were convincing. After all, no previous “temporary” income tax hike had become permanent.
Moreover, four years ago there was a compelling reason to boost taxes. Despite years of sharp program slashing, the state budget was badly bleeding red ink because of the worst recession since the 1930s depression. Tax revenue had slowed to a trickle.
The state’s unemployment rate was the third worst in the country, roughly 10%. Two years earlier it had exceeded 12%.
The state budget deficit was a whopping $25 billion. It had been $40 billion two years before. If Proposition 30 failed, Sacramento warned, $5.4 billion would need to be yanked from K-12 schools and community colleges, plus $500 million from public universities. That seemed unconscionable.
Contrast that bleak picture with today’s bright outlook. The California unemployment rate in July was down to 5.5%. The state budget is running a surplus and, in fact, the governor and Legislature have been stashing money in a “rainy day” reserve.
Sure, the $7.7 billion expected to be gleaned this year from the 2012 tax hike helps the state balance its checking account, the $122-billion general fund. But the main reason for flush times is the national economy.
Regardless, Democrats and teachers unions have become addicted to the Proposition 30 revenue. And it peters out after 2018.
So the California Teachers Assn. and some other groups — the Service Employees International Union, California Hospital Assn., California Medical Assn. — have created Proposition 55 to last through 2030.
Proposition 55 would abandon a minuscule sales tax bump that was included in Proposition 30, but extend the higher income taxes paid by the top 1.5%.
Single taxpayers would be affected on incomes higher than $263,000 a year; married couples double that. Rates would be jacked up an additional notch at intervals, topping out at 13.3% with annual earnings exceeding about $1.1 million. Before Proposition 30, the highest rate was 10.3%.
I won’t be paying those high tax rates, but it’s still lousy policy. Proposition 55 perpetuates a really bad, outdated tax system and discourages sensible reform.
The flaw in California’s soak-the-rich tax system is that it’s unreliable. It’s too volatile, jerking up and down like a rollercoaster. When times are good the well-heeled score big, especially with capital gains, and pour money into Sacramento. When times inevitably turn bad, their taxes dwindle. And the state is forced to cut programs for the poor.
That volatility is why no one can pinpoint how much Proposition 55 would raise each year. Bean counters wildly estimate $4 billion to $9 billion. Half the money would be spent on K-12 schools and community colleges. The rest would go to healthcare, debt repayment and savings.
The solution to the unstable revenue is to broaden and flatten the tax base — lower the high income rates and extend the sales tax to services.
Bernie Sanders followers who want to sock it to the top 1% shouldn’t confuse the federal tax system with California’s. Washington may go easy on the rich. California never has, even before Proposition 30. Currently, the richest 1% pay almost half the state income tax.
There are a couple of other aggravations about extending Proposition 30.
One, Brown and the Legislature grabbed Proposition 30 taxes and enacted a sort of revenue redistribution scheme, sending more money to schools with low-income and English-learner students. That would have been fine, except it came at the expense of many middle class and suburban schools. And voters weren’t offered a hint of it during the 2012 campaign.
Two, although taxpayers pumped more money into schools, Sacramento still hasn’t enacted substantive education reform, including making it easier to fire bad teachers. The union adamantly objects to that.
But the glaring flaw in Proposition 55 is that it’s disingenuous. Proposition 30 was supposed to be temporary. This bothers Brown, who hasn’t taken a position on the tax extension.
“I’m leaving that to the people,” the governor told reporters in May. “I said it was temporary… and I think I’ll leave it there.”
All the polls show it passing, however. That’s because only a relative handful of people would pay the tax.
“There’s a reason why we tax the 1%,” Brown said in June. “It’s because that’s a tax people have shown they are willing to vote for.”
There’s about $50 million lined up to push Proposition 55. Hardly anyone is spending money to oppose it.
But still: Temporary should mean temporary. And one broken political promise leads to another — and massive mistrust.
Follow @LATimesSkelton on Twitter
Get our Essential Politics newsletter
The latest news, analysis and insights from our politics teams from Sacramento to D.C.
You may occasionally receive promotional content from the Los Angeles Times.