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“Temporary” Taxes Forever

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“Temporary” Taxes Forever

Jerry Brown remains silent about two proposals to extend Proposition 30. November 20, 2015
California

Nothing is so permanent as a temporary tax. In California, the state’s most powerful public-employee lobbies are preparing two initiatives for the November 2016 ballot that would either extend or simply make permanent an income-tax increase on the state’s highest earners that was scheduled to expire at the end of 2018. Legislators and their union patrons can hardly contain themselves.

Anyone with eyes to see could have predicted this turn of events. In 2012, the Golden State faced a $16 billion budget deficit caused almost entirely by unchecked entitlements, poor revenue estimates, and years of bad legislative choices. Governor Jerry Brown went to voters and said, in effect, he wouldn’t raise their taxes; he wanted them to raise taxes on themselves. But he promised that the pain would only be temporary. And if voters didn’t go along, well, the governor couldn’t guarantee what might happen next to public schools, health care for the poor, and other beloved programs. No pressure or anything—just vote for Proposition 30 and nobody else would get hurt. Brown tramped up and down the state in the weeks before the election, quoting scripture as he often does to make his case. When the ballots were all counted, 55.4 percent of voters went along.

Prop. 30 amended the state’s constitution to raise the sales tax from 7.25 percent to 7.5 percent for four years and retroactively hiked for seven years the income tax on Californians earning more than $250,000. The top tax bracket went from 10.3 percent to 13.3 percent, giving the Golden State the distinction of boasting the highest marginal income-tax rates in America. The “temporary” measure was supposed to raise anywhere from $6.4 billion to $9 billion a year, with the bulk of the money intended for public schools (or, at least, the public school teachers’ beleaguered retirement fund). Brown admonished legislators in his January 2013 “state of the state” address not to let the additional revenues cloud their judgment. “The people have given us seven years of extra taxes,” he said. “Let us follow the wisdom of Joseph, pay down our debts, and store up reserves against the leaner times that will surely come.”

That notion lasted about a year before state officials—the ones not named Brown—began speaking openly of extending the Prop. 30 hikes forever. Then, earlier this year, California’s Service Employees International Union and the California Teachers Association met to discuss a ballot initiative, dubbed the “School Funding and Budget Stability Act,” to extend Prop. 30’s income tax portion at least through 2030, when everyone will have forgotten why the additional taxes seemed necessary in the first place. The SEIU-CTA measure would purportedly raise between $5 billion and $11 billion annually, depending on the performance of the stock market. The state’s nonpartisan Legislative Analyst’s Office has long pointed out that the state relies too heavily on capital gains taxes, making revenues volatile and difficult to predict. “Near the midpoint of this range—around $7.5 billion—is one reasonable expectation of the additional revenue that this measure would generate in 2019,” the LAO’s analysis of the SEIU-CTA initiative concludes. “Thereafter, through 2030, that amount will rise or fall each year depending on trends in the stock market and the economy.”

A second proposal by the SEIU-United Health Care Workers West, the California Hospital Association, and Common Sense Kids Action—cloyingly titled the “Invest in California’s Children Act”—would drop any pretense of sunset dates and permanently enshrine the 13.3 percent bracket in the tax code. It also would impose even higher rates on “super-earner” couples who make more than $2 million a year.

The measure could raise upward of $10.6 billion yearly—again, depending on the market—with 45 percent earmarked for K-12 education, 5 percent for community colleges, 10 percent for child development programs, and 40 percent for Medi-Cal, the state’s version of Medicaid. Common Sense Kids Action is the brainchild of Jim Steyer, brother of billionaire environmentalist Tom Steyer. Jim Steyer contends that early childhood programs such as First 5 California, funded by cigarette taxes and Head Start, are at once indispensable and insufficient. He argues that his measure simply asks the richest Californians to “pay a little more so we can make the investments every California kid needs to have a great start in life.”

Last month, the different groups began a series of meetings to see whether they could avoid an expensive and divisive campaign next year. The teachers unions are keen to expand the 1988 state constitutional mandate requiring at least 40 percent of the general-fund budget be allocated to K-12 education. They’d like to push it to 50 percent. But the health-care lobby, particularly the California Medical Association, has been pushing for the state to increase Medi-Cal reimbursements to doctors. If the CMA and the hospitals can’t get a larger cut from permanently higher income taxes, they might push for yet another $2-a-pack cigarette tax.

Where is Brown in all this? “I said when I campaigned for Prop. 30 that it was a temporary tax,” Brown said in October 2014. “That’s my belief, and I’m doing what we can to live within our means.” He added, “Don’t worry about having too many Democrats in Sacramento. If they get out of hand, I’ll keep them in check.” Brown reiterated his point in January in response to another reporter’s question. “I said that’s a temporary tax,” he said curtly. And when Brown released his revised 2015-16 budget in May, the 104-page summary noted that general-fund revenues are expected to keep growing even without Prop. 30’s additional taxes.

But now the governor is being coy and his spokesmen nonresponsive. The interests that secured Brown’s historic third and fourth terms are taking no chances. Unlike death and taxes, Jerry Brown will be gone in January 2019. The CTA, SEIU, and the alphabet soup of Sacramento lobbyists will be around forever.

Photo by Justin Sullivan/Getty Images

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