Leg committee hearing: Prop. 30 a loser

Editor’s note: This is the first in a series of articles on the propositions on the November ballot.

Oct. 8, 2012

By Dave Roberts

Proposition 30 is either a vital lifeline for budget-ravaged schools and social services. Or it’s unnecessary taxation by a government with a record of wasting money that will accelerate the exodus of residents and businesses out of state. It would increase sales taxes a quarter cent; and boost income taxes up to 3 percentage points on those making $250,000 or more a year. The top income tax rate would rise to 13.3 percent, the highest state rate in the nation.

Those were the contrasting views of numerous Democrats, liberals and education officials supporting Prop. 30, and a couple of Republicans and a taxpayer advocate opposing it at the Assembly Budget Committee’s recent informational hearing.

The latest Field poll showed Prop. 30 losing support, with just 51 percent saying they will vote for it, down from 54 percent in July. Forty percent believe they are already over-taxed.

Prop. 30 is expected to generate about $6 billion annually for four years beginning in 2013, after which the sales tax hike expires. The income tax hike on top earners continues for three more years after that. The actual amount generated could be a couple billion dollars more or less than $6 billion, depending on how the economy is doing, according to legislative analyst Mark Whitaker. The Legislative Analyst’s Office does not factor in the ramifications of residents and businesses leaving the state as a result of higher taxes.

Prop. 30 is competing on the ballot with Proposition 38, an income tax hike on nearly all Californian earners lasting 12 years that is projected to generate about $10 billion annually in initial years, with most of the money slated for schools. If both propositions receive a majority of votes, only the one receiving the most votes would take effect.

League of Women Voters

Arguing in favor of Prop. 30 at the committee hearing was Trudy Schafer, representing the League of Women Voters of California.

“Californians recognize that education and other services like health care, child care, the courts have all been cut to the bone,” said Schafer. “Prop. 30 begins to move California toward financial stability and adequate funding for all the services that we want from our government. We can’t continue to cut vital public services like schools and public safety. After years of such cuts, our schools, our universities, public safety services and others are at the breaking point. We just can’t continue to do this and still keep an economy that is strong, well informed, well educated for the next generation.”

School funding has been cut $20 billion in the last four years, resulting in 30,000 teacher layoffs, according to Schafer. She warned, “If Prop. 30 is not enacted, schools would be forced to shorten the school year, lay off thousands more teachers, increasing class sizes perhaps by another 20 percent, stop buying textbooks and increase community college tuition even more. So we need to stop those things.”

Jarvis group

Making the case against Prop. 30 was David Wolfe,  representing the Howard Jarvis Taxpayers Association. He argued that calling Prop. 30 a “temporary” tax hike is deceptive because it lasts seven years and it’s likely there would be an effort to extend it at that time, as occurred with the failed Prop. 1A tax extension effort in 2009. Wolfe also pointed out that Prop. 30 would do nothing to solve California’s problem of unpredictable levels of tax revenue from year to year.

“Prop. 30 will not fix our progressive income tax system that created our current structural budget problem,” he said. “In fact, by adding three new brackets to the seven already in place it makes the problem worse. Already the top 144,000 taxpayers in the state, the top 1 percent, pay 37 percent of the total personal income tax revenue that the state receives. And this is a problem that Proposition 30 does nothing to address. Everyone knows that the number one problem with California’s tax structure is volatility. And even the governor admits that Proposition 30 makes this volatility problem much, much worse.”

Wolfe argued that raising income taxes on those making $250,000 or more will hurt small businesses, which typically file their taxes as personal instead of corporate income. “This is something we can ill afford with 2 million Californians out of work right now,” he said.

California doesn’t exactly have a strong track record in spending tax dollars wisely, Wolfe noted.

“It’s very difficult to justify a $50 billion tax increase when one considers the amount of wasteful spending and lack of reforms that have been uncovered just this year alone,” he said. “Let’s start with high-speed rail. The Legislature authorized this year that $6 billion worth of bond money at an interest cost to taxpayers of $300 million a year go to build not a usable segment but a piece of track between Bakersfield and Merced.”

Wolfe also cited pension reform that is estimated to save $30-$50 billion over 30 years when the state’s unfunded pension liability has been estimated at $500 billion. “We would argue this is not reform, this is window dressing,” he said.

And he mentioned the budgetary “rainy day fund” that was supposed to be on the 2012 ballot but instead was moved to 2014 after Democrats reneged on their agreement. There’s also the $54 million parks department slush fund that no one knew about while parks were threatened with closure.

“We can’t even manage the money that we have available,” said Wolfe. “And now taxpayers should give $50 billion more? No way.”

No new money

Ironically, although Prop. 30 is touted as helping schools, “it will actually provide no new money for educational programs,” he said. “And although it supports Prop. 30, this was clearly articulated by the California School Boards Association.”

Howard Jarvis has run a radio ad making that point and quoting the CSBA.

But Dennis Meyers, CSBA assistant executive director for governmental relations, told the committee that its words were taken out of context. “Proposition 30 is good for public schools; they are much better off with it than without it,” he said.

However, Meyers acknowledged that Prop. 30 won’t in fact provide new funding, but instead would simply restore some of the funding that has been cut in recent years.

“Without Prop. 30, schools are 14 percent below the amount of funding they received in 2007-08,” he said. “With Prop. 30, we are 9 percent [below]. It begins to build back what we lost over the last five budget cycles.”

One of the main points of contention in the two-hour Assembly committee hearing focused on whether California’s government is actually spending more currently than it has in the past. Brian Nestande, R-Palm Desert, said the budget cuts have been overstated because many are only temporary.

“They are almost illusionary because they happen one year to the next and then go right back,” he said. “Your overhead stays the same, basically. But as far as spending overall, spending is up overall. I’m not going to argue that these aren’t hard choices. But the point of fact is that if you factor in the use of special funds, it’s $20-30 billion more than it was a couple years ago. Federal monies, tens of billions of dollars more. Money that the state spends from the federal government, from special funds, from our general budget is up every year since I’ve been here. That’s just a fact.”

That assertion threw the Democrats on the committee into a tizzy. One after another cited cuts to schools, the courts, health care and a plethora of social service programs, which are all paid out of the General Fund.

But Nestande is correct about the increase in overall spending, according to figures from the state Department of Finance. Total state spending in the 2012-13 budget is $225.4 billion. That includes $91.4 billion in the General Fund, $39.4 billion in special funds, $11.7 billion in bond funds and $82.9 billion in federal funds. It’s true that General Fund spending is down from its high of nearly $103 billion in 2007-08. But total spending is at an all-time high. It’s now $31 million, or 16 percent, higher than the state spent in 2007-08, and has more than doubled in the past 14 years.

Nestande argued that what’s really needed in California is an overhaul of the tax system, moving toward a consumption tax.

“Economists agree, right or left, a consumption-based tax is the best taxing system for an economy,” he said. “You get more revenue into the state by allowing the economy to grow and not having this disproportionately heavy income tax, heavy sales tax, which harms the economy and inhibits growth and inhibits revenue to the state.”

18 comments

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  1. Hondo
    Hondo 8 October, 2012, 10:48

    France has an ongoing exodus after it jacked up the tax rates to 75%. High end housing is flooded with sales and the rich people not letting the door hit them in the a$$ on the way outa Paris.
    The people with the most money are the most mobile and are heading toward Kalifornia’s border as we speak.
    It’s the small business that has gross sales of half a million, plumbing contractors, restaurants, landscaping, that can’t get up and move and will get killed with these taxes. And many of those are minorities who vote for dems no matter how bad the dems run the state into the ground.
    Those people get what the deserve.
    Hondo……..

    Reply this comment
  2. Ulysses Uhaul
    Ulysses Uhaul 8 October, 2012, 11:33

    Colorado Hondo moans…read all about the carpetbagger telling us how to live in sunny California.

    Reply this comment
  3. Richard Rider
    Richard Rider 8 October, 2012, 14:24

    It’s not just that many of the wealthy will outright leave. Some of our wealthy are stuck here for now because of their service businesses that can’t relocate without losing their clientele. When they retire, that’s another matter.

    Some of our wealthy residents make their money elsewhere, but will live here part of the year. Modern movie actors, for instance — who likely will quietly establish a “second home” as their official tax residence.

    But perhaps the biggest problem is that no sane wealthy CEO would relocate his company and his family to California. Few enough businesses move here now — expect that declining number to plummet.

    Reply this comment
  4. Richard Rider
    Richard Rider 8 October, 2012, 14:28

    And remember — the huge income tax component of Prop 30 is RETROACTIVE to the first of 2011. Incredibly, we can pass a tax in November to go grab earnings from the beginning of the year.

    I find that most people consider that fundamentally unfair (Occupy airheads being the exception, of course). I suspect that many of the wealthy will be livid.

    It’s a jarring boot in the pants — telling the rich how much we despise them in California. Not good.

    Reply this comment
  5. Richard Rider
    Richard Rider 8 October, 2012, 15:51

    Here’s a letter to the State Senate I submitted at their request (I signed one argument against Prop 38. As I point out, my points apply as well to Prop 30.

    San Diego Tax Fighters
    10969 Red Cedar Dr.
    San Diego, CA 92131
    Voice: (858) 530-3027
    Email: [email protected]
    30 July, 2012 (updated 9/25/12)
    Authored by Richard Rider, Chairman

    Dear California State Senators:

    As Chairman of San Diego Tax Fighters – a grassroots, unabashedly pro-taxpayer outfit – I signed the ballot book opposition rebuttal argument concerning Prop 38 – the “Munger” proposition. You’ve asked for my input for an upcoming hearing, so here it is. I see no need to here cover the ballot arguments further. I might add that these points apply equally as well to Prop 30, the “Brown” tax.

    Instead I’ll discuss below the “millionaire’s tax” aspect – and the unintended consequences if either the Brown or Munger tax is passed. This subject is seldom broached even by opponents (even in the ballot arguments), as it’s felt that many people so hate rich folks that it’s “bad form” to speak out in their defense. I disagree.

    There’s a core fact to keep in mind – rich people seldom will leave the U.S. to avoid taxes, but – if taxes are deemed too high – many WILL leave a state. The rich are highly mobile – and often own more than one home. Other states have experienced this outflow of the wealthy – and with FAR lower state income tax increases in their millionaire’s tax than California’s Prop 30 and 38.

    Moreover, the really rich (the much-hated “investor class”) don’t even have to leave to avoid most CA income taxes. Most have second homes in other states and travel quite a lot. They can relocate their official residence to such a home, while still visiting California several months a year (but staying here no longer than 6 months total). They do NOT have to live in their chosen official residence home for six months – they need only live outside CA for at least 6 months.

    It’s not that easy to relocate for tax purposes – one must do it right and really relocate. There are over 20 criteria a wealthy current “Golden State” taxpayer should meet to no longer be a California resident. But for a rich person with proper financial advice and assistance, it’s a logical decision that offers huge annual savings.

    How many wealthy folks will relocate – or take their businesses elsewhere? No telling. But most rich people are presumed to be greedy by the Occupy movement – let’s accept that premise. I think we can agree that they didn’t become wealthy by being financially stupid. The one thing we can be fairly confident is that rich people now living in other states will no longer be moving themselves and their businesses TO California from other states. And that’s not good for our state – in so many, many ways.

    It’s important to understand how California income taxes stack up against the other 49 states. California already has the 2nd highest state income tax rate in the nation (behind Hawaii’s 11.0%). Our 9.3% tax bracket starts at $48,029 for people filing as individuals. Our 10.3% tax starts at $1,000,000.

    Consider the Brown “millionaires’ tax.” It would raise that rate to 13.3%, starting at $500,000 – including capital gains. If approved, CA will be by far #1 in income tax rates. We will be 21% higher than the 2nd highest state (Hawaii), 34% higher than the 3rd highest state (Oregon), and a heck of a lot higher than all the rest – including seven states with zero state income tax. http://taxfoundation.org/sites/taxfoundation.org/files/docs/ff2012.pdf Table #11

    The Munger top bracket is 12.5%. While lower than the top Brown tax bracket, it’s still much higher than the other states. We will be 14% higher than Hawaii and 26% higher than Oregon.

    Note that in 2011 California had the 3rd highest state income tax rate. Now we are 2nd. What changed?

    What changed was that Oregon, an extremely liberal state, decided it would be best to LOWER their top tax bracket from 11% to 9.9%. Was it because they decided to coddle the wealthy? I think not. They concluded that their state would receive more revenue (and the economy would do better) if they didn’t soak the rich so much.

    BTW, Oregon has ZERO state or local sales tax – one of only three states without a sales tax. In contrast, California has the highest state sales tax rate in the nation.

    It’s not just Oregon moving to reduce their state income taxes. Here’s a blog item I wrote in February of this year, based on a WALL ST JOURNAL article (link below):

    http://open.salon.com/blog/richard_rider/2012/02/22/several_states_cutting_or_eliminating_their_income_tax

    Several states cutting or eliminating their income tax.
    by Richard Rider

    It’s tragic how some desperate states experiencing runaway state government spending are raising their income taxes to soak the rich. But for those states such as California, it’s MORE tragic that many other states are now moving to cut or eliminate their state income tax on corporations and/or individuals. This little-reported tax cutting trend rates wider publicity.
    Why would states CUT their income tax collections? Could it be that they want our refugee millionaires and businesses to move there – and don’t want to lose their wealthy to other neighboring states? Or maybe they are just stark raving mad (the dismissive likely liberal explanation).

    Here’s one obvious reason — low tax states do better economically than high tax states. Below is the latest quick bottom line comparison:

    You WILL want to read this WALL ST JOURNAL editorial. It names names (actually, states) — Oklahoma, South Carolina, Kansas and Indiana. In addition, Idaho, Maine, Nebraska, New Jersey and Ohio are debating income-tax cuts this year. Already 7 other states charge zero income tax.
    http://online.wsj.com/article/SB10001424052970203889904577200872159113492.html

    I maintain a fact sheet, comparing California with the other 49 states. Included are taxes, regulations, litigation, utility costs and other factors. Sadly, the Golden State is not so golden after all. And our annual California state net domestic outmigration reflects this.
    http://riderrants.blogspot.com/2012/09/california-vs-other-states-fact-sheet.html – revised 9/21/12

    To further raise our already sky-high tax rates is madness. Currently CA is already the engine of prosperity – for the other 49 states.

    Respectfully,
    Richard Rider

    Reply this comment
  6. Rex the Wonder Dog!
    Rex the Wonder Dog! 8 October, 2012, 16:12

    Proposition 30 is either a vital lifeline for budget-ravaged schools and social services.
    ==
    There is no guarantee ANY of the prop 30 money will go to schools. It is general fund money and can be used in any manner the legislature and gov want to use it, and that will be to the the pensions black hole, the prison guards annual raises black hole, the cap n trade black hole, the……well you get the pic.

    Reply this comment
  7. The Africanized Swarm of Ted Steele System
    The Africanized Swarm of Ted Steele System 8 October, 2012, 16:40

    While it must be fun for you righties to preach to the choir—- Rex the Poodle remains 0 for 13 ™ in his infamous ability to predict the future!!!

    Reply this comment
  8. Rex the Wonder Dog!
    Rex the Wonder Dog! 8 October, 2012, 17:55

    Rex the Rotti is now 133-0 🙂

    Reply this comment
  9. us citizen
    us citizen 8 October, 2012, 18:27

    Kudos to all the answers except for the one.

    So did anyone ever wonder why we have the second highest tax rates but the 47th educational system? Makes ya wonder doesnt it? Where issssssss all that money going? 🙂 (This is a rhetorical question)

    NO on 30 and 38!

    Reply this comment
  10. Burrito Bro
    Burrito Bro 8 October, 2012, 20:12

    We have the biggest immigrant children population in America…..takes time, talent, resources….

    Be patient. These kids will keep America and California great.

    Reply this comment
  11. The Africanized Swarm of Ted Steele System
    The Africanized Swarm of Ted Steele System 8 October, 2012, 20:18

    LOL– he’s a poodle—– and usually wrong!

    0 for 13 ™

    Reply this comment
  12. The Africanized Swarm of Ted Steele System
    The Africanized Swarm of Ted Steele System 8 October, 2012, 20:19

    Burrito Brah– Like generations of previous immigrants– you are probably correct!

    Reply this comment
  13. Douglas
    Douglas 9 October, 2012, 06:33

    I think if you will search “rich not fleeing high tax states” on any search engine, you will find empirical evidence is mixed, at best. Anyone can come up with anecdotal cases, but, for the most part, the “rich” stay put, and probably get even richer.

    Reply this comment
  14. The Africanized Swarm of Ted Steele System
    The Africanized Swarm of Ted Steele System 9 October, 2012, 09:58

    I agree Doug– and Prop 30 polls very well with the wealthy!

    Reply this comment
  15. Katherine
    Katherine 14 October, 2012, 20:28

    I hope you will make children the winners by voting Yes-Yes on Proposition 30 and Proposition 38. While you are all complaining about taxes you might want to reflect that our tax system is incredibly inequitable due to passage of Prop 13, so we have some citizens and corporations paying virtually nothing, while others have to make up for their lack of contribution.
    Prop 30 may not add $$ to schools, but it will stabilize funding for now, vs. forcing many schools into insolvency and expensive takeovers by the state. Since Jerry Brown was last governor, and our population has grown, we have built one UC campus. And 19 prisons. The result of not educating our children. It’s pathetic. And INCREDIBLY expensive. If businesses move out, maybe they will sell their property (vs less than 50% which does not trigger a reassessment – before prop 13, the property tax contribution between businesses and individuals was 50/50…not it is 20/80…I wonder who designed that prop!!). Honestly, it is shocking to me how little people care about children. And their futures. Which are linked to the future of this state.

    Reply this comment
  16. CTO
    CTO 15 October, 2012, 04:41

    No on Prop 30.. We don’t need more taxes.. Forget it. I’m voting NO

    Reply this comment
  17. Moravecglobal
    Moravecglobal 21 October, 2012, 21:49

    Best Hope to Fix Calif. Education. “All you have to do is spend more (Prop 30, 38) on education” should be ignored as Prop 30, 38 do not serve our state’s school and university children. Additional money (Prop 30, 38) is not the magic elixir. We are kidding ourselves by believing that education funding shortfalls disappear with Prop 30, Prop 38.
    Prop 30, Prop 38 levy significant taxes on each one of us. The wounds that Prop 30, 38 are to heal have been self inflicted largely by our elected Sacramento politicians who simply do not say no to any influential interest group be they teachers, University of California (29% increase in salaries last 6 years), public employees, business, or other unions or lobbyists.
    As election day approaches Prop 30, 38 are used by Sacramento politicians and lobbyists to blackmail us.
    Vote No on Prop 30, 38, 32. Save Calfornia education for our school and university children.

    Reply this comment
  18. Dayna Olhouser
    Dayna Olhouser 23 October, 2012, 05:31

    Due to the decline in economy, the US government is somehow going haywire with its collection of revenues to pay the deficits. This is not good for the American families who are living penny by penny.

    Reply this comment

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