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Tax-initiative passage opens floodgates in California

More revenue from sales and income OK’d, backed by Democratic muscle

- The Washington Times - Thursday, November 8, 2012

After decades of fighting with tight-fisted taxpayers and Republicans for more money, California's Democrats finally saw the revenue floodgates open Tuesday.

Not only did voters approve a $6 billion sales- and income-tax increase in a ballot initiative, but they appear to have elected supermajorities to both houses of the Legislature, meaning Democrats can raise taxes without having to finagle any Republican votes.

Small wonder that Democratic Gov. Jerry Brown, who fought hard for the new money, felt the need to call for restraint after the election by citing the biblical story of Joseph, who helped the Pharaoh ward off famine by storing away grain during the seven years of plenty.

"If you look back, we have periods where the money flows in, and then periods where there's not enough money," said Mr. Brown at a Wednesday press conference. "We need the prudence of Joseph to inform the next seven years."

Californians passed Proposition 30, a $6 billion measure aimed at closing the "budget gap" by raising the income tax on high earners and the sales tax on everyone, as well as Proposition 39, which collects $1 billion for clean-energy projects by raising taxes on out-of-state corporations.

The latest election return shows Democrats increased their majorities in Sacramento to 54-26 in the Assembly and 28-12 in the Senate, although ballots are still being counted in two districts. If the Democratic candidates hold their leads, lawmakers would have the two-thirds majority needed to increase taxes without voter approval and override any gubernatorial vetoes.

Dan Schnur, director of the Jesse Unruh Institute of Politics at the University of Southern California, said it may fall to Mr. Brown to rein in any free-spending legislative impulses.

"The governor and both legislative leaders vowed they are not going to raise taxes, but they also talked about programs they wanted to reinstate, and didn't identify where money for that program is going to come from" said Mr. Schnur. "Jerry Brown is smart, he knows voters didn't write him a big check."

California Senate Majority Leader Darrell Steinberg and Assembly Speaker John Perez told reporters Wednesday they had no plans to increase taxes, even though the Legislature is likely to come under intense pressure to restore funding to programs hit by recent budget cuts.

"I promise that we will exercise this new power with strength, but also with humility and reason," Mr. Steinberg told the Sacramento Bee. "I certainly don't intend to suggest to my colleagues that the first thing we do with our new power is to go out and seek to raise more taxes."

Skepticism

Not everyone is convinced. "Democrats, Don't Go Overboard" read the headline of a Thursday editorial in The Sun newspaper in San Bernardino.

Supporters say funding from Proposition 30 will have an immediate impact on kindergarten through 12th grade and on the state's prestigious but cash-strapped public universities. School districts that had weighed cutting weeks or even a month from the school year will now be able to stay on schedule, say backers.

The University of California plans to hold its tuition rates instead of raising them this year, while the California State University system is slated to issue $250 refunds for the fall semester and reduce tuition in the spring.

Brice Harris, chancellor of the state's community colleges, said Wednesday the anticipated $210 million in funding will enable the system to serve about 20,000 additional students.

Proposition 30 passed with 54 percent of the vote after a campaign that warned of dire cuts to education and public services. President Obama's strong showing in California didn't hurt, either, said analysts.

"The governor and the public employees' unions had a great ground game, and of course it was another big Obama year," said Jon Coupal, president of the Howard Jarvis Taxpayers Association, which opposed Proposition 30.

He said he worried that Proposition 30 will accelerate the exodus of small-business owners and taxpayers. Those earning more than $250,000 annually will see their marginal income-tax rate leap from 10.3 to 13.3 percent. The measure also raises for four years the sales tax from 7.25 to 7.50 cents on the dollar.

Under Proposition 30, California will have the highest top marginal state income-tax rate in the nation. The state already had the highest sales tax in the nation.

"I think it's going to be a Third World economy on the order of Greece," said Mr. Coupal. "The impact on the overall economy is going to be a real body blow, and it won't manifest itself for a couple of years. Then you're going to have people saying, 'What happened?'"

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