Budget Tax Soap Opera Continues

APRIL 1, 2011

By JOHN SEILER

The latest episode of the soap opera “As the Tax Increase World Turns” is putting another 1 percentage-point tax on the wealthy. It’s being promoted by the California Federation of Teachers union, which sponsored a poll by Democratic Pollster Ben Tolchin. Reported the San Francisco Chronicle:

With negotiations over how to solve California’s $26.6 billion state budget deficit stalled, a new poll released today shows strong bipartisan support for something Sacramento lawmakers this year haven’t seriously debated: raising taxes on the wealthiest residents.

Seventy-eight percent of likely California voters support a 1 percent increase in the income tax rate for Californians earning more than $500,000 a year, according to the poll, which was conducted by Democratic pollster Ben Tulchin and sponsored by the California Federation of Teachers.

The idea would be to get California voters in a tax-the-rich mood, then also slip onto the ballot a more general tax increase on everybody.

If you’ve been around California politics a while, one of the things you notice is that people are reluctant to increase their own taxes, but sometimes will increase taxes on those looked down upon:

* Proposition 10 in 1998, according to Ballotpedia, “imposed additional tax on cigarettes of 50 cents/pack, as well as additional taxes on other tobacco products. With the revenue from those taxes, the state government created state and county commissions to establish early childhood development and smoking prevention programs. These are known as First 5 agencies.”

* In 2004, voters approved Proposition 63, a 1 percentage-point tax increase on incomes above $1 million to fund mental health research. According to Ballotpedia, “The initiative was written by then Assemblyman Darrell Steinberg and Mental Health lobbyist Sherman Selix.” Steinberg now is the president pro-tem of the state Senate.

The tax made sense to a lot of voters. Your crazy cousin is bothering you. Why not buy him some Valium with a tax on millionaires?

Too Many Tax Votes?

A new $1-a-pack tobacco tax is scheduled for the February 2012 California primary ballot. If a Special Election is called in November for other tax increases, according to state law the new tobacco tax instead would be placed on that ballot. According to Ballotpedia, “The goal of the proposed act was to add new taxes to cigarettes and use the new tax money to fund various cancer research programs.”

That means at least three taxes could be on a November ballot: the new tax on the wealthy, the new tobacco tax and a general package of tax increases.

With seven months until a potential November Special Election, even more tax increases might be placed on the ballot. California does not lack for special interests seeking tax funding.

To use a football phrase, even with just three tax increases on a ballot, the problem then might become one of “piling on.” As then-Gov. Arnold Schwarzenegger found out the hard way with his plank of four reform measures in November 2005, pressing voters too hard, too soon pushes them into a negative mood that spells defeat on election day.

Another rule of politics is that the time must be right for an action to be taken. Schwarzenegger lost a vote on spending limits in 2005, Proposition 76, because the state was enjoying the up side of the boom-bust economic cycle, especially in the housing market.

For the same reason, a proposed pension reform measure that year didn’t even make it to the ballot. The criticism that killed it (which turned out to be false) was that it would have cut out pensions for the widows of slain policemen.

Back in 2005, plenty of money was sloshing around the state, property values were climbing ever higher, so why worry?

The opposite is the case today. Budget limitation and pension reform measures would have a good chance of being passed by voters. That’s precisely why Gov. Brown won’t put such measures on a ballot with his proposed tax increases.

Yesterday, he continued his mantra, “At this point, there is an overwhelming commitment on the part of the Republicans to deny the people of California the right to vote.” But the “right to vote” apparently doesn’t extend to pension and budget limitations.

In 2011, despite a modest economic recovery, California’s economy remains mired in a recession. Its unemployment rate of 12.2 percent remains significantly higher than the 8.9 percent national level (for January).

Even those with jobs know friends and relatives struggling to make ends meet while standing in unemployment lines. Brown and the Democratic leaders in the Legislature seem not to understand that the private sector first must create income, sales and capital before those things can be taxed.

In this sour economic mood, the opposite of 2005, a slate of tax increases on a November ballot would have a difficult time with voters, even those envious of the rich or disdainful of smokers.

Ballot-Box Budgeting

The proposed ballot measures also involve what has been criticized as “ballot-box budgeting.” One of the reason the state’s budget is such a mess is that past measures mandated specific taxes for specific spending. As noted above, Steinberg is responsible Prop. 63, on millionaires for mental-health services.

Without Prop. 63, that money — at least $800 million this year — would be available to reduce the budget deficit.

Indeed, why doesn’t Brown propose an initiative shifting the Prop. 63 and Prop. 10 money into the general-fund budget for a few years? The state did fine for decades without these programs. Surely, in this dire budget time, it would survive without them again. We all have to make sacrifices.

But creative thinking remains in short supply in the state Capitol, with tax increases of one sort or another the only options on the table.

The soap opera continues. Tune in tomorrow for another episode of “As the Tax Increase World Turns.”