Initiatives filed to extend Prop. 30 tax hikes

moneyCalifornia’s temporary income tax hikes aren’t set to expire until 2018, but that hasn’t stopped Sacramento special interest groups from laying the groundwork for campaigns to extend Proposition 30.

In recent months, sponsors of tax increases have filed the necessary paperwork to obtain a ballot title and summary for multiple tax increases, including two versions of a Prop. 30 tax extension. Critics of higher taxes say that an extension of Prop. 30 violates the promise made in 2012.

“Prop. 30 was creatively advertised and sold to the voters by a union, the California Teachers Association, which depicted it as a ‘temporary’ tax to support public schools,” contends former Democratic State Senator Gloria Romero. “But even while Prop. 30 was being pitched to voters as a temporary tax increase, no one in the political world actually believed it. In fact, discussions were already underway before its passage about extending Prop. 30 tax increases beyond the two expiration dates.”

Version 1: Prop. 30 Tax Extension

In September, attorneys on behalf of the Alliance for a Better California, a coalition of education unions, organized labor and health care providers, introduced the “School Funding and Budget Stability Act,” which would impose higher income taxes on high-wealth earners for the next 12 years. The $9 billion in anticipated higher tax proceeds would go towards schools. That also explains why the California Teachers Association is among the proposal’s biggest supporters.

“Temporarily extending these critical revenues will help keep our state budget balanced, and prevent devastating cuts to programs affecting students, seniors, working families and health care,” Gale Kaufman, a longtime Democratic strategist and representative of the coalition, told the Educator, the CTA’s monthly magazine.

Under the plan, California residents earning more than a half-million dollars per year would continue to pay Prop. 30’s higher income taxes until 2030. The quarter-cent sales tax increase would expire next year as scheduled.

Version 2: Prop. 30 Tax Extension

Not content with one tax hike, the same group introduced a second Prop. 30 tax extension in December. The measure would impose Prop. 30’s higher tax rates on those earning more than $250,000 per year — with the proceeds allocated in a slightly different manner.

student loanIn an apparent bid to gain support from California’s hospitals, “The California Children’s Education and Health Care Protection Act of 2016” would allocate up to $2 billion towards Medi-Cal spending.

“Whether this version truly represents a joint teachers union/health care effort remains to be seen,” explains Loren Kaye, president of the California Foundation for Commerce and Education. “The health care union has not indicated its position on this approach; indeed, in a bizarre twist, it recently sued the CHA for entering into negotiations with CTA in the first place.”

“Amid this uncertainty, one fact remains unassailable: the CTA has a measure ‘on the street’ for which they can begin collecting signatures. Everything else for now is speculation,” he added.

Sponsors of the tax increase say it is desperately needed to avoid catastrophic cuts to schools and other public services.

“Unless we act now to temporarily extend the current income tax rates on the wealthiest Californians, our public schools will soon face another devastating round of cuts due to lost revenue of billions of dollars a year,” the sponsors of the ballot measure wrote in a draft initiative. “We can let the temporary sales tax increase expire to help working families, but this is not the time to be giving the wealthiest people in California a tax cut that they don’t need and that our schools can’t afford.”

Prop. 30 Tax Extension Could Backfire

Many economists fear that any Prop. 30 income tax extension could backfire and further drive high-income earners out-of-state. California’s $115 billion General Fund budget has become increasingly dependent on income tax revenue, which frequently fluctuates based on the stock market.

“(T)he initiative to extend Prop. 30 taxes, rather than solving a problem, creates a worse one,” writes Jerry Nickelsburg, a senior economist for the UCLA Anderson Forecast. “Our current greater dependence on high-income earners to balance the state budget makes us more vulnerable.”

Nevertheless, many state political observers say that a tax extension, which could generate upwards of $11 billion in revenue, is likely to pass in 2016. At a recent economic summit, “Controller Betty Yee predicted that a Proposition 30 extension and a cigarette tax will be on the 2016 ballot and both would pass.”

That assessment comes even as one-time supporters of Prop. 30 question the rationale for its extension.

“In a time of financial crisis, Prop. 30 made sense,” the Los Angeles Daily News recently editorialized. “But the state is no longer in crisis, and any ballot measure playing off the fear of a return to dark days should be seen for the political ploy it is by unionists seeking to protect their own interests.”

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