Saturday, July 14, 2012

California Proposition 30: Governor Jerry Brown's Big-Government Tax Hike

California Governor Jerry Brown, in partnership with public-sector unions such as the California Teachers Association (CTA), the California Federation of Teachers (CFT) and the Service Employee International Union (SEIU) proposes big tax hikes on a small number of Californians in order to close a multi-billion dollar budget hole.  Despite the budget hole, threats to public safety, and threats to close public schools for weeks, the California Legislature continues to block prudent comprehensive public-pension reforms, to fund tuition benefits for children of undocumented workers, and to fund a not-so-"high-speed" rail line between Merced and Bakersfield.  The California Legislature has NO SPENDING PRIORITIES.

The latest incarnation of the Governor's plan will appear on the November 2012 ballot in California as Proposition 30.

California already has some of the highest state taxes in the United States.  Those earning over $48,000 incur a 9.3% state tax rate--California's second-highest rate, which by itself is already the fourth highest in the nation even without any tax hikes.  Only the top tax rates in Hawaii, California, and Oregon are higher.

If passed, Proposition 30 would burden California the nation’s first, second, third, and fifth highest marginal state tax rates!  The following chart compares California's current state income tax rates and proposed increases against the highest income tax rates in other states.  Billed by the Governor and his allies as a "temporary" tax hike, these rates would be in effect for seven years.  The income tax increases fall exclusively on the top 2-3% of taxpayers who already pay roughly half (or more) of California's entire tax bill.

In order to appear "fair" and "broad-based", Proposition 30 also increases California’s state sales tax, already the nation’s highest. The following chart compares California’s state sales tax rate to the other 49 states.

Despite all of Governor Brown's talk of tax fairness, Proposition 30 circumvents the Legislature’s 2/3rd requirement to raise taxes. In fact, Proposition 30 is “electioneered” by Governor Jerry Brown and his allies to only require a simple majority to pass. Proposition 30 asks the 50% of California voters--who pay little or no state income tax--to pass a big tax increase on the top 2-3% of California taxpayers, who already pay roughly 50% of ALL state income taxes. Proposition 30 is an abuse of the so-called “democratic process”, especially for so-called Democrats. Is this what “democracy” looks like?

Proposition 30 asks California voters for a four-year, 0.25% rate increase to the state sales tax, which equates to a 3.4% rate increase. The sales tax hike applies to ALL Californians. Proposition 30 also asks voters for a seven-year increase on only the top 2-3% of income taxpayers.  This equates to a 9.7% to 24.4% rate increase for the taxpayers who ALREADY pay the highest effective tax rate and roughly 50% of all state income tax.

In 2009, the average tax liability for every California taxpayer was about $2,655.  However, averages usually hide some important details.  For example, the average human being has one testicle and one ovary.  The bottom 50% of taxpayers (and possible voters) pays between $0 and $500 in TOTAL California income tax.  Meanwhile, Governor Brown's tax increase targets the top 2-3% of taxpayers who earn $250,000 or more ever year, despite that they ALREADY pay the highest effective tax rates.  These taxpayers also already pay between $9,000 and $1.3 million.

The primary reason that California income tax revenues collapsed during the financial crisis is that INCOMES collapsed for ALL Californians, but especially for those at the top. The following chart shows the incomes and income taxes collected in 2007 (before the financial crash) and in 2009 (after the financial crash).  Why the big swings in income and taxes for those making over $1 million?  Unlike the federal tax system, California treats capital gains exactly like ordinary earned income.  The California Legislature loves all the extra revenue generated from stock market and real estate gains.  Unfortunately, this over-reliance means huge decreases during market crashes.  The subprime crisis causes simultaneous crashes is BOTH real estate and on Wall Street.  The California Legislative Analysts Office (LAO) has long recognized this problem as a cause for California's revenue volatility.

Despite that top taxpayers still  pay the highest marginal tax rates, Proposition 30 wants to increase those rates even more, leaving California even MORE VULNERABLE to future market swings. 

California ALREADY suffers from its high taxation. The result is that California suffers from a poor business tax climate that drives away jobs and causes are above-average unemployment.  Many Democrats within the California government refuse to believe that high taxes have any effect on California's economy, despite ample evidence to the contrary.  Why have California's tax revenues dropped?  It is NOT because tax rates are too low.  The fundamental problem is that California's private-sector economy is stagnating while government expenditures have increased.  Simply raising taxes, even if it is limited to the top 2-3%, will NOT fix what ails California.

California currently has the nation’s 3rd-worst unemployment rate, beating out only Rhode Island and Nevada.

Naturally, the public-employee unions are bankrolling Proposition 30 and have spent over $31.6 MILLION as of November 3, 2012.

Many of these groups are also recognized as the biggest spenders in California politics, according to a March 2010 report by the California Fair Political Practices Commission.  The California Teachers Association (CTA) has spent $10.7 MILLION on Proposition 30 so far and the Service Employees International Union (SEIU) has spent over $11.1 MILLION as of 11/3/2012.  The spending will likely be even higher by the time the election is over.

What kind of access does that kind of money buy? Just ask California Governor Jerry Brown, who has private town-hall meetings with California's public-sector unions.  Even career Democrats such as Willie Brown (no relation)--California's longest-serving Assembly Speaker and former Mayor of San Francisco--recognize that Governor Brown is a prisoner of the teachers unions. These are the same unions that are bankrolling his tax hike and likely will be out campaigning for it before November.

Meanwhile, the amount of money that the State of California spends continues to grow.  State spending is up 23% since 2000, even accounting for inflation.

Why should we pay more ...
  • when we already have one of the nation's highest tax burdens,
  • when the Legislature is handing out raises to its staff,
  • when politicians haven't curbed rapidly increasing pension costs,
  • when they're wasting billions on prisons, 
  • when they've shunned a spending limit,
  • when they're spending tens of millions on illegal immigrants' college educations, and 
  • most importantly – when the state is mired in recession and 2 million-plus are jobless?
Fellow Californians, I urge you to VOTE NO on PROPOSITION 30!  It's bad tax policy and an abuse of the democratic system.
See also ...