Proposition 55 — Impressive Distortions, Unimpressive Policy

If there was a convincing case for a law, making it would not require distortions. Consequently, when arguments involve multiple misrepresentations, the likelihood of good policy, rather than a means to pick pockets, is minuscule.

Proposition 55 demonstrates this. It would extend explicitly temporary income tax hikes Proposition 30 imposed on California’s highest income earners in 2012 (to the highest rates in America), for a budgetary emergency, from 2018 to 2030.

prop-55The voter guide’s pro-55 argument offers little but distortions. It claims it “prevents billions in budget cuts,” using terms like “devastating,” by making “the wealthiest Californians continue to pay their fair share.” It asserts multiple times that it will not raise anyone’s taxes, assures voters that no one else will be affected by those taxes, and that “Under Proposition 55, all Californians’ sales taxes are reduced.”

However, no education cuts are currently planned. Proposition 30’s money pipeline continues until the 2019-2020 fiscal year. Education spending has jumped almost $25 billion (over 50 percent) since 2012, while the state budget went from a huge deficit to a sizeable surplus and a rainy day fund. No budget emergency justifies extending Proposition 30’s highly disproportionate impositions from 4 years to 16 years.

Claiming Proposition 55 would ensure that the wealthiest Californians would continue to pay their fair share is similarly distorted. Even granting that “fair share” rhetoric has real meaning, rather than offering a never-ending source of complaints so undefined opponents cannot refute them, it falls flat. If the heavily disproportionate income tax burdens before Proposition 30 were considered “fair,” the much higher burdens it temporarily imposed cannot be bootstrapped into a new, even more disproportionate standard of fairness.

Pro-55 rhetoric of providing for our children also differs from its actual effect. Much of the money will backfill underfunded pensions, increasing those teachers’ retirement security, but doing nothing for our children. With about four-fifths of education expenses teacher compensation, other funding increases will largely go to existing teachers, regardless of whether added benefits are provided to children. And cynicism is justified by teachers unions’ bare-knuckle opposition to every accountability reform that would benefit students.

The pro-55 argument asserts it does not raise anyone’s taxes. However, while it would not raise higher income earners’ tax rates from the temporarily boosted levels of Proposition 30, it boosts them from what they would have been in the absence of Proposition 55. Further, extending those tax rates a dozen years could add over $100 billion in burdens. Imposing such huge added burdens can only be dishonestly characterized as not raising anyone’s taxes.

Those not directly facing higher tax rates will also pay a price, contrary to pro-55 claims. Every restriction in supply (e.g., from producers leaving California, as documented after Proposition 30) it causes will harm everyone else through the “tax” of higher prices. This is especially problematic with many small businesses paying personal income tax rates on their business income, guaranteeing that many non-wealthy Californians will leave or face much higher taxes for years.

While Proposition 55 backers portray a huge income tax boost as nonexistent, they do the converse for sales taxes. They say, “Under Proposition 55 all Californians’ sales tax are reduced,’ and further claim it as economic stimulus. But in fact, under Proposition 30, the sales tax rate will fall back to its earlier level anyway. Whether Proposition 55 passes or fails changes nothing, but backers pretend it does.

Pro-55 interests misrepresent the education budget situation, supposedly “fair” tax shares and who gains. They assert a huge increase in tax burdens does not raise anyone’s taxes, while crediting a tax reduction that will happen anyway to Proposition 55. Cramming all that disinformation, and more, into the heavily-funded pro-55 campaign, while keeping straight faces, is an impressive feat. But going to such overwhelming lengths to deceive voters is not an impressive reason to vote for it.

Gary M. Galles is a professor of economics at Pepperdine University, a research fellow at the Independent Institute, adjunct scholar at the Ludwig von Mises Institute, and member of the FEE faculty network. His books include Apostle of Peace (2013), Faulty Premises, Faulty Policies (2014) and Lines of Liberty (2016).

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