California’s Proposed Tax Hikes

Never underestimate the anti-tax wrath of California voters.  Years ago, Californians were struggling under higher and higher property taxes that were continually getting reassessed and raised, and at one point they had had enough.  In 1978, Proposition 13 was proposed to cap property taxes and limit reassessments, and it passed with a huge margin despite a firestorm of opposition from every politician around.  The author and chief proponent of Prop 13, gadfly Howard Jarvis, became a minor celebrity and helped author similar ballot measures in other states.  His fame even earned him a cameo appearance in the 1980 movie Airplane!

California faced a similar moment in 2003 after the Internet stock market went bust and the then-governor tried to fix a budget shortfall by drastically raising vehicle registration fees.  That governor became the second state governor in US history to be successfully recalled from office.

This November, Californians are facing several tax-increase proposals.  While anything is possible, all of the tax-hike proposals will probably fail.

The proposition claiming dibs on the highest amount of Californians’ money is the “Molly Munger’s California State Income Tax Increase to Support Education Initiative,” named after Molly Munger, daughter of Berkshire Hathaway billionaire Charlie Munger.  (Question: what is it with Berkshire Hathaway?  First Warren Buffet and now his partner’s daughter are pushing huge tax increases.  Maybe there is something in the water at the Berkshire headquarters in Omaha.)  If passed, the Munger initiative would raise an estimated $10 billion per year by raising taxes on all but the poorest Californians, with the windfall earmarked for education.  So far, the only vocal opponents to this tax hike are those groups who want to clear the field so that other tax hike proposals have a better chance of passing.

California’s Governor Jerry Brown also has combined several tax hikes into a single tax hike proposal on this year’s ballot.  Brown’s proposal would raise taxes on the highest-earners to a produce peak marginal tax rate of 13.3 percent, incorporating another “millionaire’s tax” that originally worked a few years ago, and will also raise sales taxes from 7.25% to 7.5%, the nation’s highest.  This tax hike is estimated to raise about $7 billion per year.

Californians will also be asked to vote on a proposal that re-assesses commercial properties every three years, expected to bring $4 billion in new taxes annually, and on a proposal to tax the drilling of oil and gas in California, and that proposal will bring in an estimated $2 billion every year.

Apparently there are still some out-of-state businesses that venture into California, so another proposed tax will address their ability to pay more taxes, to the tune of $1 billion annually.  And in a June Proposal, those dastardly cigarette smokers will also be asked to cough up another $1 per pack of cigarettes, and that measure is expected to bring in another $850 million annually.

All told, Californians could potentially be taxed almost $25 billion more per year, including the increased tax on out-of-state businesses, which will undoubtedly be passed along to California consumers.  In one of the already highest-taxed states with an economy of $1.9 trillion, this is a pretty big addition to the government’s tax take.

So is California really that pro-tax?  Could all these tax hikes pass?  And what about the California electorate gives encouragement to the authors of these proposals?

Granted, if you look back on the results of the 2010 elections, you can see why tax-hikers are encouraged.   The 2010 conservative tidal wave that swept out of office many Democrats in the rest of the country mostly passed California by.  Very few California office-holders were thrown out, and not only did California re-elect the liberal Democrat Barbara Boxer to the Senate, but the voters dusted off and brought Jerry Brown back as governor.

But come November, any liberal optimism will be misplaced.  The same economic malaise that existed in 2010 in California is still alive and well.  A Field Poll from last fall showed that 91% of Californians say that the state’s economy is bad, and only 26% foresee things getting better in the next year.  That is a lot of pessimism out there.  And while the unemployment situation in the country overall is slightly improved, unemployment in California is still stuck at 11%.  In a good economy, Californians might stomach tax hikes like these, but in the current slow economy with high unemployment, Californians are just not in the mood to raise their taxes.

Jarvis would have had fun with these proposals

In fact, Californians would be much more interested in cutting their taxes, a la Proposition 13, than in raising them.  If Howard Jarvis were alive today he would have his hands full.  And he would be having much more fun opposing these tax proposals than he ever had in his cameo in the movie Airplane!




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