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Proposition 55 May Be Good Politics, But Is It Good Policy?

Ben Adler / Capital Public Radio

The campaign for a voter initiative that would extend the income tax increases on the rich held a news conference on Wednesday May 11, 2016, at California Middle School in Sacramento.

Ben Adler / Capital Public Radio

Should rich Californians pay higher state income taxes to fund schools, health care for the poor, and other programs?

If that question sounds familiar, it’s because voters faced the same choice four years ago.

They said yes in 2012, during the state's budget crisis. Now, with the budget much healthier, the question is whether to extend taxes that supporters, including Gov. Jerry Brown, vowed would be “temporary.”

The governor said that May: “I’m linking the serious budget reductions – real, increased austerity – with a plea to the voters: Please increase taxes temporarily on the most affluent and everyone else with a quarter of a cent sales tax.”

He made that statement at a time when the state faced a $16 billion budget deficit. Brown promised Proposition 30 would balance the state budget and avoid even deeper cuts to schools. It passed with 55 percent of the vote. And it did balance the budget – for a while.

But with schools and other programs crippled from years of cuts, the governor and legislative Democrats increased spending every year since. The state’s general fund is now more than $25 billion larger. And because of all that new spending, Proposition 30’s expiration could create a new deficit.

This brings us to Proposition 55. The proposal allows the sales tax increase to sunset at the end of this year but would extend the income tax hikes through 2030.

1012BA PROP55 LAO chart

Source: California Legislative Analyst's Office

“We can’t afford to go back to the days of massive teacher layoffs, larger class sizes and cuts to programs like art and music,”
Eric Heins, with the California Teachers Association, said as supporters launched their campaign earlier this year at a Sacramento middle school.

“This initiative simply asks those that earn the most in our state – the wealthiest two percent – to continue paying a little bit more for a little while longer,” added Laphonza Butler with the Service Employees International Union.

That "little while longer" is actually 12 years.

“On a budgetary basis, this is terrible policy,” says Mike Genest, the top budget aide to former Republican Governor Arnold Schwarzenegger. That’s because income tax revenues from the wealthy soar in boom times but plummet in recessions.

“This up and down cycle of our California budget, where it's feast or famine, is unhealthy for the state; it’s bad for the programs that rely on the budget,” says Genest.

In addition to the usual support from labor and progressive groups, the measure is also backed by doctors and hospitals because it steers some of the money to Medi-Cal, California’s health care program for the poor. Anthony Wright with the advocacy group Health Access says state programs aren’t even back to pre-recession funding levels.

“And the idea that then we would say, we’re going to give a tax cut to the top 1 percent and make additional cuts on top of that seems to us, disastrous,” says Wright.

There's another big difference between Propositions 30 and 55: The governor has stayed studiously neutral this time.

The California Chamber of Commerce, which was neutral on Proposition 30, now opposes Proposition 55.

“There was clearly a deficit (in 2012), and there was a need,” Chamber President Allan Zaremberg said earlier this year. “Now, the question is, is now the right time – after we sold that to the voters with a temporary increase – that we should go out there and virtually make it permanent?”

Yet the Chamber has done nothing to fight the measure, nor have other critics.

Perhaps that's because while it’s debatable whether taxing the rich in California is good budget policy, there's little doubt it's good politics.