State Tax Increase, Due to Expire in 2018, Might Live On

brown prop 30 california budgetIn 2012, Californians adopted Proposition 30, a “temporary” tax that, according to the governor, state legislators and teachers’ unions, would save the state’s education system by giving it an influx of at least $6 billion. The initiative jacked up income taxes on people earning more than $250,000 through 2018, and increased sales tax on everyone, through the end of this year. Now, the Golden State’s teachers’ unions, along with the Service Employees International Union, are looking to keep the higher income tax in place through 2030. (The sales tax increase will expire as scheduled.) California voters will decide on the tax extension in November, when the California Children’s Education and Health Care Protection Act of 2016, or Prop. 55, appears on the ballot.

It’s no surprise that the teachers’ unions would want to keep the higher tax — and the additional revenues it brings — in place. Earlier this year, California Teachers Association president Eric Heins claimed that Prop. 30 generated revenues that “continue paying back schools from the years of devastating cuts — especially those serving our most at-risk students.” But there was never any devastation. During the recession, spending dipped for K-12 schools and community colleges, but the decrease was hardly devastating. And since the end of the recession, California’s education spending has increased more than 40 percent.

All the extra money has brought paltry results. The work of the late Andrew Coulson shows that between 1972 and 2012, California’s education spending (adjusting for inflation) doubled, but students’ SAT scores actually went down. Things have gotten worse since 2012. In fourth-grade math, California ranks at the bottom nationally, just one point above New Mexico, Alabama and Washington, D.C., according to November 2015 data from the National Assessment of Educational Progress, known as “the nation’s report card.” In fourth-grade reading, only New Mexico and D.C. fared worse.

A recent study on the relationship between spending and achievement, conducted in Michigan, found no statistically significant correlation between how much a state’s public schools spend and how well students perform. Mackinac Center education policy director Ben DeGrow, who coauthored the study, said, “Of the 28 measurements of academic achievement studied, we find only one category showed a statistically significant correlation between spending and achievement, and the gains were nominal at best.” He added, “Spending may matter in some cases, but given the way public schools currently spend their resources, it is highly unlikely that merely increasing funding will generate any meaningful boost to student achievement.”

And yet, the unions look to be in strong position to win their tax-hike extension. A Public Policy Institute of California poll in April found that 64 percent of Californians support it. Among likely voters, 62 percent favor it. More than six in 10 voters believe that the state should spend more on education. And after insisting that the tax would be temporary, Governor Jerry Brown is having second thoughts. In his May budget revision report, he said, “The emerging shortfall is in large part — but  not entirely — due to the expiration of the temporary taxes imposed under Proposition 30.”

Does the average voter know how much California already spends on education? Apparently not. A recent Education Next poll asked respondents to estimate per-pupil expenditures in their local school district. On average, the respondents guessed $6,307 — but their school districts spent nearly double that, or $12,440 per pupil in 2012, when expenditures for transportation, capital expenses, and debt service are included.

The CTA has already sunk $10 million into the Prop. 55 campaign, with more to come. The Million Voters Project, an effort funded by many left-wing philanthropists, is working hard to pass it. Supporters insist that the tax falls only on the wealthy, whom they claim don’t pay their “fair share.” A look at the numbers tells a different story. A report issued by the Congressional Budget Office in 2012 shows that the top 1 percent of income earners across the nation paid 39 percent of federal individual income taxes in 2009, while earning 13 percent of the income. Hence, it’s clear that the rich are already paying considerably more than their “fair share.” At what point will California’s perennially overtaxed realize that their bottom line will be much healthier in, say, Texas?

American Federation of Teachers president Randi Weingarten and other union leaders continue to believe that we can spend our way to academic success. All the data show otherwise. With a debt of more than $1 trillion and counting, along with some of the highest tax rates in the country, California can ill afford more spending. The state’s residents have to stop falling for myths about meager education dollars. Voting “No” on Prop. 55 would be a good place to start.

State Revenue Falling Behind Estimates Thanks to Excessive Taxation

Betty YeeState Controller Betty Yee’s just-released July Cash Report shows state personal income tax revenue falling behind estimates by 6.9 percent, or $323 million lower than projections. While some will argue that one month does not make a trend, these figures are significant because they represent revenue in the first month of the new state budget, a budget that is based on much higher income estimates.

Should these below projection income tax revenues really be a surprise to anyone with even a minimal understanding of basic economics? Economists tell us that if you want less of something, tax it more, and California has the highest marginal income tax rates in all 50 states.

When upper income individuals were slammed with tax rates on steroids as a result of Proposition 30, approved by voters in 2012, they had little immediate choice but to pay, and the tax revenue poured in. (It should be noted that the tax, approved in November, was retroactive for the entirety of 2012 so there was an almost instantaneous infusion of cash into state coffers.) Still, many compelled to pay these higher taxes took some comfort in knowing the exorbitant tax rates were scheduled to end in 2018.

However, lawmakers viewed this extra revenue as the new normal and they partied on in Sacramento with ever higher state budgets — they have increased spending by 42 percent in the last five years and there is no end to the spending spree in sight.

While the Sacramento politicians are loath to give up this additional cash next year as scheduled, the report from the Controller’s Office shows that the negative consequences of higher taxes, like proverbial chickens, are coming home to roost.

Most high income individuals are savvy and, given time, those penalized with a confiscatory level of taxation will respond by using legal methods that allow them to keep more of their own money. I personally know a veterinarian who cut his salary while retaining the unpaid wages in the business, a small animal hospital, he owns.

Sadly, over time, other successful individuals have packed up and left the state. This helps to explain the exodus of businesses, and the jobs they create, to other areas of the country with a more attractive tax climate.

A recently released study by Spectrum Locations Solutions estimates that over the last seven years, 9,000 business have either divested in California, or, while maintaining their headquarters here, have chosen to expand elsewhere.

“Gov. Jerry Brown’s office routinely denies that business departures is a serious issue,” says Joseph Vranich, a site selection consultant, who prepared the report. Brown’s denials are consistent with State Senate and Assembly leaders who see no down side to ever higher taxes.

Of course those businesses leaving the state are not just fleeing higher income taxes, high taxes in almost every other category are a factor, as are the costs of suffocating regulations.

But for those paying the ultra-high income tax rates, no relief is in sight. California government employee unions, who represent the highest paid public workers in all 50 states, are fielding a ballot measure – Proposition 55 – that will extend the Proposition 30 tax increases for another 13 years.

There is little doubt that just the threat of extending these hyper income taxes, will spur more high earners, to depart. If Proposition 55 passes this November, there will be consequences for the California taxpayers who remain. When Sacramento runs out of higher income individuals to tax, they are certain to shift their attention to those of more modest means.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

This piece was originally published by

Teachers Union Hits Taxpayers with ‘Money Club’ Again

government-voteThe California Teachers Association has just dropped $10 million into its campaign to extend the “temporary” income tax hike voters approved when they passed Proposition 30 in 2012. Proposition 55, which will appear on this November’s ballot, would extend the highest income tax rates in all 50 states for another dozen years.

Four years ago, the muscular union, called by many in Sacramento the “Fourth Branch of Government,” spent over $11 million to convince voters to increase sales and income taxes. The campaign, paid for by government employee unions and led by Gov. Jerry Brown, repeatedly promised voters the higher taxes would last only a few years and then go away.

These ultra-high tax rates are scheduled to end in 2018 and union leaders are panicking. If the tax increase ends, there may be less money to fund increases in member pay and benefits.

Spending big money on politics is not unusual for the deep pocketed CTA which receives its funding from mandatory dues. Those dues, withheld from members’ paychecks whether they like it or not, can total more than $1000 a year for a single teacher. Recall that CTA laid out $58 million in opposing several worthy reform measures in a 2005 special election including one reform that would have capped state spending. Union leaders like a guaranteed cash flow so it should come as no surprise if they put out an additional $10 million, or more, to support the Proposition 55 income tax extension. For backers of Proposition 55, spending millions in return for billions of tax dollars is considered a bargain.

The campaign will, no doubt, target low information voters with messages about how, “it’s for the children.” It is standard operational procedure for tax promoters to use children as human shields when advancing a tax increase tied to education. Not to be mentioned is that the union’s interest is solely in increasing pay and benefits, including generous pensions, for members who are already paid more than $20,000 above the national average. And don’t forget that a national education union leader once famously said “when school children start paying union dues, that’s when I’ll start representing the interests of children.”

Some will argue that ultra-high taxes should be maintained because public employees deserve to be well paid. They are. According the Department of Labor, California is the state with the best paid state and local government employees.

Our state is running a multi-billion-dollar surplus, yet Proposition 55 backers want to continue the ultra-high taxes that are already pushing businesses, and the jobs they provide, to relocate out of state. And it’s not just businesses. The list of high wealth individuals including professional athletes and entertainers who have bailed out of California is a mile long.

But the deleterious impact of high taxes is wholly lost on the union bosses. Their attention is, no doubt, on the latest news from the California State Teachers’ Retirement System. The second-largest U.S. public pension fund earned a paltry 1.4 percent return on investments in the fiscal year just ended, missing its target of 7.5 percent for the second straight year.  This raises questions about the fund’s management and whether or not it will be able to meet its obligation to 896,000 current and retired teachers.

Of course, taxpayers remain the guarantor of all public employee pensions so, in all fairness, the Proposition 55 income tax extension could come to be called the “pension tax.” And the teachers union is prepared to use its massive “money club” on voters to make sure Proposition 55 passes and the taxpayers’ dollars are there.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

17 Initiatives Qualify for November Ballot

Voting boothVoters have been warned for a while to be prepared for a seemingly never-ending series of ballot measures, and on Thursday the secretary of state released the final list of what initiatives qualified.

Seventeen total. And while voters will read and learn more as the campaigns unfold between now and Election Day, here is a quick reference guide to get your bearings.

Referendum to Overturn Ban on Single-Use Plastic Bags: This is as it sounds. In 2014, the Legislature passed a ban on single-use plastic bags. So a “yes” vote would uphold the ban. A “no” vote would overturn it.

To uphold the law would ban the use of single-use carryout bags, except for perishable items. It would also impose a fee of at least $.10 per paper bag or thicker plastic bag if the customer didn’t provide a reusable one.

The ban actually died on the Assembly floor in 2014 three days before it passed. What changed? A deal was struck between the United Food and Commercial Workers Union and Safeway creating the $.10 fee, which will be kept by the grocer/retailer.

Plastic Bags, Part II: If the plastic bag ban is upheld by voters, this initiative would divert the $.10 fees for bags to a state fund to pay for environmental programs. This would be in lieu of the money going to the grocers.

Campaign Finance (Poll): This is basically just an elaborate poll. It’s a non-binding measure that allows voters through the ballot process to log their approval or disapproval of campaign finance law in the country.

A similar measure got tied up in court in 2014, as opponents called it a ploy to drive voter turnout. But in January, the state Supreme Court ruled it was allowable, and so here it is.

Specifically at question is the 2010 Citizens United ruling where the U.S. Supreme Court allowed for corporations and labor unions to spend unlimited sums in support or opposition of a political candidate.

Guns and Ammo: This is Lt. Gov. Gavin Newsom’s pet project. This would ban magazines of 11 rounds or more, require background checks for ammunition and require the state to share data in the FBI’s background check system, among other things.

However, a bill passed by the Legislature on Thursday but not signed yet by Gov. Jerry Brown would amend this ballot initiative (yes, it amends something that isn’t yet law) to further limit who can purchase ammunition to both persons whose data matches up with the Automated Firearms System and to those who have a ammunition purchase authorization. There are some exceptions.

Naturally, this sidestep of Newsom to amend his measure ruffled his feathers, dragging him and Senate President Pro Tem Kevin de Leon, the bill’s sponsor, into a public disagreement.

“This last-minute, anti-democratic, poison pill sneak attack makes you wonder if the Pro Tem cares about himself more than he cares about doing the right thing,” said Newsom spokesman Dan Newman, according to The Sacramento Bee. “Is he someone who truly respects the will of the voters and wants to reduce gun violence or is he merely a self-serving cynic completely consumed with petty personal grudges?”

Death Penalty Repeal: This repeals the death penalty as the maximum punishment for murder and replaces it with life without parole, applying retroactively to those already sentenced to death.

This has a provision mandating those who’ve been sentenced to life without parole to work, with 60 percent of their income possibly going towards restitution to victims.

The Opposite of a Death Penalty Repeal: And for those who think the death penalty should stay as the ultimate sentence for murder, this measure would speed up the process by implementing a time limit on the lengthy appeals process, by assigning the superior court for the initial review and by limiting the number of successive petitions.

Like the competing measure, this would impose a work requirement for restitution to victims.

Drug Pricing: This would set pharmaceutical prices for any state agency to be as low as what the U.S. Department of Veterans Affairs pays — the VA benefits from federally mandated cost controls.

According to KPCC, the measure would apply to “any program in which the state is the ultimate payer for a drug,” which includes: Medi-Cal fee-for-service plans, CalPERS (provides health benefits to current and retired state employees), prison inmates and people receiving AIDS drugs from the government.

Condoms in Porn: This may as well be called the Condoms In Porn Act, because it would require porn actors to wear condoms during the filming of sexual intercourse.

It also requires that producers provide testing and vaccinations for STDs. And for what it’s worth, producers would also have to post the condom requirements at the job site.

No Blank Checks Initiative: This would require any bond of $2 billion or more for a state project to go before the voters for approval.

As dull as that sounds, it could have a dramatic impact on Gov. Jerry Brown’s legacy, in that it would likely put funding for the bullet train and the twin tunnels water project up to a vote of the people.

School Bond: This would authorize $9 billion in bonds for school construction and modernization, supported by a coalition of school districts and school developers. Pretty self-explanatory.

The measure failed to qualify in 2014, however, amid opposition from Gov. Jerry Brown, who said at the time local school construction was best left up to local control.

Earlier this year, Brown reiterated his opposition, calling the initiative a “blunderbuss effort that promotes sprawl and squanders money that would be far better spent in low-income communities,” according to EdSource.

FYI: Blunderbuss is a “blundering person,” according to Merriam-Webster. It’s also an old fashioned, muzzle-loading gun.

Prop. 30 extension: This is a 12-year extension of Prop. 30, which was a seven-year temporary tax on earnings of more than $250,000 annually to bolster education funding, with the extension coming two years early.

Prop. 30 passed to stave of imminent sharp cuts in education. Now that the economy has recovered, proponents want to keep the money flowing and now hospitals want a cut too.

The extension would allow a quarter-cent sales tax that was part of Prop. 30 to expire, but would add up to $2 billion in funding per year for Medi-Cal, the state’s Medicaid program.

As part of Prop. 30, the program was supposed to receive several layers of accountability, including a state-run audit of the fund that doles out the money to schools that still hasn’t happened. The controller’s office previously told CalWatchdog the audit would likely happen before voters have to decide.

California Legislature Transparency Act: The CLTA is a constitutional amendment requiring the Legislature to make available online the final version of a bill at least 72 hours prior to a vote on either the Assembly or Senate floor. It would also require all open legislative meetings be recorded with the videos posted online within 24 hours and would give permission to individuals to record and share their own videos of open meetings.

Assembly Speaker Anthony Rendon, D-Lakewood, is currently negotiating with CLTA proponents over changes proposed by the Legislature — but the negotiations are not going well.

Multilingual Education: This would repeal most of Prop. 227, which in 1998 placed heavy restrictions on bilingual educations for English learners in favor of English-immersion education.

Why would voters overturn their prior decision? Education Week framed the debate well. Proponents argue new data shows the value of bilingual education, native English speakers would be allowed access to a bilingual education (if they choose), and because we live in a different world with rapidly changing demographics.

Why would voters keep Prop. 227 on the books? Ron Unz, a former candidate for U.S. Senate and governor who pushed for Prop. 227, argued that an overall improvement over a year-period in standardized test scores shows Prop. 227 worked. And others would likely make a nativist argument: This is America, and residents should learn English.

Medi-Cal Hospital Reimbursement: This one is a little confusing. The federal government contributes to the state’s health care program for low-income patients, called Medi-Cal. In order to get this money, the state has to contribute matching funds.

In 2009, the state passed a law taxing hospitals to help contribute to the state’s portion of the Medi-Cal funding to get the money from the feds. However, the state was diverting some of this money into the general fund.

So, this measure amends the state Constitution requiring these funds go to where they are intended.

It would require a two-thirds vote of the Legislature to amend the fee allocation program only when the changes would “amend or add provisions that further the purposes of the Act.” It would require voter approval to repeal or replace the program with a “similar statute imposing a tax, fee or assessment unless that similar statute is either.”

Sentencing overhaul:  Jerry Brown’s baby. After surviving a legal challenge and rumored sky-high signature collecting fees, this bill made it to the ballot just before the deadline.

Brown’s measure would allow for some nonviolent felons to be paroled early in certain instances, require judges to hold hearings prior to determining whether to try juveniles as an adult, and develop a good behavior, parole-and-sentence credit system for prisoners.

Marijuana Legalization: This would allow individuals, 21 and older, to transport and use up to an ounce of recreational pot. It would allow individuals to grow as many as six plants.

If approved, California would join Alaska, Colorado, Washington and Oregon in allowing recreational pot.

Tobacco Tax: If this passes, smokers would pay a $2-per-pack tax on cigarettes, with a similar increase on other tobacco products and e-cigs containing nicotine. The money will go primarily to healthcare and anti-smoking/tobacco-related health programs.

This piece was originally published by

L.A. County Wants to Impose Local Income Tax

Photo courtesy of channone, flickr

Photo courtesy of channone, flickr

Members of the Los Angeles County Board of Supervisors have suggested an income tax on millionaires dedicating the money for homelessness relief. Opening the door for local governments to impose income taxes would erode the state’s major fund raising mechanism, burden taxpayers with more paperwork, hit small businesses whose owners pay business taxes through personal income taxes, and subject more government revenue to a highly volatile revenue source. All in all a bad idea.

Last week, when Gov. Jerry Brown vetoed the bill that would have permitted local governments to levy cigarette taxes, he complained that there already are too many taxes on the coming ballot. A push for an income tax would increase the volume of tax measures facing voters.

Yesterday, the L.A. Board of Supervisors put off for one week a motion to ask county lobbyists to try and convince legislators to change the law that prohibits local jurisdictions from imposing an income tax.

Still, Pandora’s Box on local income taxes has been cracked open. If the movement persists the consequences can be great.

The proposal to levy local income taxes comes at a time that a statewide effort to extend the Proposition 30 state income tax levies is on-going. California’s top income taxpayers already pay the highest income tax rate in the country.

L.A. County wants to pile on.

The L.A. County supervisors think they have a winning proposal. The press release announcing the effort said a poll showed 76 percent support. Advocates of the idea will point to 14 states that give permission for some local governments to raise income taxes. Of course, it’s always easy for those polled to say they are willing to raise taxes on someone else.

But what happens when there is an economic downturn? I dealt with that concern for the state last week considering the possibility of a Shakespearean Tragedy for the State Budget.  Looks like the locals want to stage a similar play.

When I write locals, I mean more than Los Angeles. If the Legislature decides to change the restrictions on local governments imposing an income tax, does anyone think other jurisdictions will sit ideally by? Los Angeles County supervisors say they want the money to help the homeless. There are a lot of other interests in communities around the state that consider the causes they believe in worthy of more economic help.

But, what about the taxpayers?

How long before local taxpayers who continue to get hit with increased tax rates throw up their hands and give up on Los Angeles and California? The burden continues to grow. Proposition 30 was sold as a temporary tax for seven years. Perhaps many high-end income taxpayers said they would weather the storm. However, those taxpayers are now looking at an additional twelve years of the highest income tax rate in the country BEFORE local governments jump on that gravy train.

In the Los Angeles County Business Federation (BizFed) poll of members issued last week, the number one concern for small business owners was the income tax.

Before anyone thinks the push for new taxes is only about the rich consider what likely might occur if government budgets relying on increased income tax revenue are hard hit during a recession or economic slowdown.

I remember reading about the Midwest congressman who announced on the floor of the House of Representatives in the early years of the 20th Century that he was voting for the amendment to the United States Constitution that would establish an income tax because his constituents wouldn’t pay the new tax. It was aimed at the rich.

The income tax eventually came after his constituents, too.

Originally published by Fox and Hounds Daily

CA “Tax Freedom Day” Later Than Most States, But Hope on the Horizon

taxesAccording to the newly released report from the Tax Foundation, California’s Tax Freedom Day is April 28—the day taxpayers of the state have collectively earned enough money to pay their federal, state and local taxes for the year. While that date places the Golden State 46th on the list of state taxpayers claiming tax freedom, there is a chance that California could move up dramatically. It all depends on November’s election.

California is grouped in the back of the pack with other high tax-high income states. Only Massachusetts, New York, New Jersey and Connecticut residents pay off all their taxes after California. The national average of all states is April 24.

The good news for the Golden State is that Tax Freedom Day occurs three days earlier than last year.

Tax Freedom Day is calculated by dividing income into taxes paid in each state. Because California has seen stronger economic growth than the nation as a whole, taxes are paid off more quickly.

Taxes still take a large chunk of people’s income. The Tax Foundation report noted that Americans would spend more on taxes in 2016 than on food, clothing and housing combined.

Tax Freedom Day is always in flux depending on actions in a state. 2016 being an election year with potential state and local taxes facing voters, California taxpayers could see their taxpaying obligation rise or fall depending on election results.

One of the big items, of course, is the effort to extend Proposition 30’s income taxes. California has the top U.S. marginal income tax rate in the country. If voters reject the Prop. 30 tax extension what would that do to California’s Tax Freedom Day standing?

Joseph Henchman, Vice President of Legal & State Projects for the Tax Foundation gave me what he called a “back of the envelope” projection of Tax Freedom Day arriving “about a week” earlier if the Prop. 30 taxes expire on schedule.

If all else remains the same that means California taxpayers would jump from nearly last at 46th place in paying off taxes up to around 37th position among all the states.

This article was originally published by Fox and Hounds Daily

Hospitals Spending Millions to Inflict More Pain On Taxpayers

NHS-nurse-hospital_2519626bIn 2012, those of us who opposed Proposition 30 were told that the measure, which was the largest state tax hike in American history, was just a “temporary” fix to address the emergency of a severe budget shortfall. But just as Milton Friedman noted that “nothing is so permanent as a temporary government measure,” here in California it appears that nothing is so permanent as a temporary tax increase.

However, in their journey to extend the Prop. 30 tax hikes, the tax raisers started tripping over their own greed. Even the public sector union bosses weren’t reading off the same page and different proposals began to emerge, each targeting billions of dollars of tax revenue to their respective constituencies. And compounding the problem was the fact that the “emergency,” which was the entire justification for Prop. 30 in the first place, disappeared. California now has a budget surplus.

But greed being a powerful motivator, the special interests worked out a compromise that focused on extending only the income tax portion of Prop. 30 and jettisoning the sales tax. This move was politically expedient given that only the income tax portion targeted “evil” rich people while the sales tax extension would have been an almost impossible sell. (If the version of the Prop. 30 extension currently gathering signature passes, California’s highest in the nation tax rate of 13.3 percent would be extended until 2030).

In Sacramento, the normal political dichotomy is between those interests seeking to preserve what they have (i.e., businesses and taxpayers) and those interests seeking to take resources from, or impose regulations on, the former. For example, homeowners want to keep their tax dollars and thus are supportive of Proposition 13 while public sector labor interests and local governments want more of those dollars and thus loath Proposition 13 as it impedes their tax raising ability.

But the dichotomy sometimes breaks down because the line between private interests and public interests isn’t always clear. For example, California has both private and public hospitals with private institutions outnumbering the public by a factor of six. So one would think that the interests of hospitals would be more aligned with seeking lower taxes. But because hospitals get billions in public revenue for Medi-Cal, they have no problem seeking higher revenues for themselves at the expense of others.

And that is why the California Hospital Association has donated $12.5 million to the effort to extend California’s sky high income tax rate. Apparently, they remain unconcerned about the economic damage that comes from excessive taxes.

But the hospitals’ doubling down on the Prop. 30 extension may not have been well thought out. That is because they want desperately to have voters approve another measure that has already qualified for the ballot in November. Originally intended for the 2014 ballot (but they missed the deadline) this proposal requires high procedural requirements (two-thirds vote of the Legislature and voter approval) before some of the existing Medi-Cal reimbursements to hospitals can be reduced.

So the question that voters must now ask themselves is why should we support the hospital industry in its effort to protect what it currently gets from government while it is also trying to force a $6 billion to $11 billion annual tax hike on Californians?

Good question.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

Originally published at 

“Temporary” Taxes Forever

tax signNothing is so permanent as a temporary tax. In California, the state’s most powerful public-employee lobbies are preparing two initiatives for the November 2016 ballot that would either extend or simply make permanent an income-tax increase on the state’s highest earners that was scheduled to expire at the end of 2018. Legislators and their union patrons can hardly contain themselves.

Anyone with eyes to see could have predicted this turn of events. In 2012, the Golden State faced a $16 billion budget deficit caused almost entirely by unchecked entitlements, poor revenue estimates, and years of bad legislative choices. Governor Jerry Brown went to voters and said, in effect, he wouldn’t raise their taxes; he wanted them to raise taxes on themselves. But he promised that the pain would only be temporary. And if voters didn’t go along, well, the governor couldn’t guarantee what might happen next to public schools, health care for the poor, and other beloved programs. No pressure or anything — just vote for Proposition 30 and nobody else would get hurt. Brown tramped up and down the state in the weeks before the election, quoting scripture as he often does to make his case. When the ballots were all counted, 55.4 percent of voters went along.

Prop. 30 amended the state’s constitution to raise the sales tax from 7.25 percent to 7.5 percent for four years and retroactively hiked for seven years the income tax on Californians earning more than $250,000. The top tax bracket went from 10.3 percent to 13.3 percent, giving the Golden State the distinction of boasting the highest marginal income-tax rates in America. The “temporary” measure was supposed to raise anywhere from $6.4 billion to $9 billion a year, with the bulk of the money intended for public schools (or, at least, the public school teachers’ beleaguered retirement fund). Brown admonished legislators in his January 2013 “state of the state” address not to let the additional revenues cloud their judgment. “The people have given us seven years of extra taxes,” he said. “Let us follow the wisdom of Joseph, pay down our debts, and store up reserves against the leaner times that will surely come.”

That notion lasted about a year before state officials — the ones not named Brown — began speaking openly of extending the Prop. 30 hikes forever. Then, earlier this year, California’s Service Employees International Union and the California Teachers Association met to discuss a ballot initiative, dubbed the “School Funding and Budget Stability Act,” to extend Prop. 30’s income tax portion at least through 2030, when everyone will have forgotten why the additional taxes seemed necessary in the first place. The SEIU-CTA measure would purportedly raise between $5 billion and $11 billion annually, depending on the performance of the stock market. The state’s nonpartisan Legislative Analyst’s Office has long pointed out that the state relies too heavily on capital gains taxes, making revenues volatile and difficult to predict. “Near the midpoint of this range — around $7.5 billion — is one reasonable expectation of the additional revenue that this measure would generate in 2019,” the LAO’s analysis of the SEIU-CTA initiative concludes. “Thereafter, through 2030, that amount will rise or fall each year depending on trends in the stock market and the economy.”

A second proposal by the SEIU-United Health Care Workers West, the California Hospital Association, and Common Sense Kids Action — cloyingly titled the “Invest in California’s Children Act” — would drop any pretense of sunset dates and permanently enshrine the 13.3 percent bracket in the tax code. It also would impose even higher rates on “super-earner” couples who make more than $2 million a year.

The measure could raise upward of $10.6 billion yearly — again, depending on the market — with 45 percent earmarked for K-12 education, 5 percent for community colleges, 10 percent for child development programs, and 40 percent for Medi-Cal, the state’s version of Medicaid. Common Sense Kids Action is the brainchild of Jim Steyer, brother of billionaire environmentalist Tom Steyer. Jim Steyer contends that early childhood programs such as First 5 California, funded by cigarette taxes and Head Start, are at once indispensable and insufficient. He argues that his measure simply asks the richest Californians to “pay a little more so we can make the investments every California kid needs to have a great start in life.”

Last month, the different groups began a series of meetings to see whether they could avoid an expensive and divisive campaign next year. The teachers unions are keen to expand the 1988 state constitutional mandate requiring at least 40 percent of the general-fund budget be allocated to K-12 education. They’d like to push it to 50 percent. But the health-care lobby, particularly the California Medical Association, has been pushing for the state to increase Medi-Cal reimbursements to doctors. If the CMA and the hospitals can’t get a larger cut from permanently higher income taxes, they might push for yet another $2-a-pack cigarette tax.

Where is Brown in all this? “I said when I campaigned for Prop. 30 that it was a temporary tax,” Brown said in October 2014. “That’s my belief, and I’m doing what we can to live within our means.” He added, “Don’t worry about having too many Democrats in Sacramento. If they get out of hand, I’ll keep them in check.” Brown reiterated his point in January in response to another reporter’s question. “I said that’s a temporary tax,” he said curtly. And when Brown released his revised 2015-16 budget in May, the 104-page summary noted that general-fund revenues are expected to keep growing even without Prop. 30’s additional taxes.

But now the governor is being coy and his spokesmen nonresponsive. The interests that secured Brown’s historic third and fourth terms are taking no chances. Unlike death and taxes, Jerry Brown will be gone in January 2019. The CTA, SEIU, and the alphabet soup of Sacramento lobbyists will be around forever.

L.A. Unified In Danger of Bankruptcy

Los-Angeles-Unified-School-District-LAUSDHere’s an old tune you’ve heard before: The Los Angeles Unified School District could face bankruptcy with one of the chief contributing factors being high pensions and health care costs for retired employees.

The L.A. School Board will discuss a new report raising that ominous red flag this week.

Pensions are not the only issue driving the school district toward insolvency. The report cited declining enrollment as a factor driving down revenue. Enrollment is falling due not only to fewer potential school age children but the fact that many students have decamped to independently operated charter schools.

Still, the pension issue is cited as part of the problem as it has been with so many financially struggling government agencies.

One year ago this week, the University of California announced it would have to seek a series of tuition increases. At the time, the UC Chief Financial Officer cited retirement costs in explaining the need for tuition increases. He said tuition hikes could be avoided if the state helped with retirement costs.

City bankruptcies or near bankruptcies in California also highlighted the pension burden. Stockton, for example, was spending $13 million in pensions at the turn of this century, a decade later the cost was $30 million and was predicted to double again in only a few years.

The possibility of the state’s largest school district facing bankruptcy will play into the push to extend the Proposition 30 tax increases beyond the date the so-called temporary taxes were to end. Voters won’t hear much from supporters of the tax extension about funding pensions – the campaign rhetoric will be about the students – but pensions are a major factor for those supporting the extension.

Last January, the Manhattan Institute’s Steve Malanga wrote in a Wall Street Journal op-ed that a good portion of the original Prop. 30 tax increase was dedicated to pensions. (Disclosure: I was quoted in the article.) He wrote that the problem of school pension costs would continue and an effort would be made to continue the Prop. 30 tax increase to cover those costs.

Now it is almost certain a form of the Prop 30 extension will be on the November 2016 ballot just as he predicted. Malanga concluded his piece: “It’s a reminder that in some places the long struggle to pay off massive government pension debt is just starting.”

It is not starting but continuing in the Golden State.

Originally published by Fox and Hounds Daily