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In California, Asking Voters to Raise Taxes

For 33 years, since the passage of Proposition 13 slashed property taxes in this state, California has been on the leading edge of the tax-cut movement that has spread across the nation.

California Flag
Photo by: scazon
California Flag

But faced with the prospect of withering budget cuts and deficits that stretch through at least the middle of the decade, that may be about to change.

A near glut of initiatives that would raise taxes are being aimed at the November 2012 ballot. A group of former state officials and Republican and Democratic business leaders calling itself the Think Long Committee for California is drafting an initiative to raise $10 billion by expanding the sales tax to services, while reducing personal and corporate taxes. Gov. Jerry Brown, a Democrat, and legislators are negotiating the details of an income-tax surcharge on the state’s top earners and for a sales tax increase that in its latest form would raise $6 billion.

In addition, labor unions want voters to approve even bigger sales and income tax increases, and environmental groups last week proposed an initiative to close a business tax loophole that they said would produce $1.2 billion for education and energy projects.

There are so many plans out there that some Democrats are warning about tax initiative gridlock on the ballot.

It is highly unlikely that all these initiatives will qualify for the ballot, and Democrats say they are working to make sure that not all of them do. Not incidentally, California’s formidable network of antitax groups is not about to be caught off guard and is confident about beating back the efforts at the polls.

Yet the sheer abundance of undisguised tax-increase proposals is the latest evidence that spending cuts in California, arguably deeper and further along than almost anywhere in the country, may be producing a reconsideration among voters about taxes and the value of government. Democratic leaders said the tax campaign marks the start of the backlash that many of them, starting with Mr. Brown, had predicted would set in as budget cuts turned into the reality of closed parks, shortened school years, a reduced number of police officers on the streets and, in the case of California, the early release of felons from overcrowded jails and prisons.

A survey of California voters conducted from Oct. 30 through Nov. 9 by The Los Angeles Times and the University of Southern California found that 64 percent of all respondents said they would pay more taxes if the money went to public schools, with support for taxes high among Democrats and independent voters. And voters in local elections across the state approved a variety of bond and tax measures last month, raising taxes on businesses, hotels and property owners to pay for schools and to offset reductions in services that communities and the state have imposed during these difficult years. Those results are now being seen as a harbinger of next year’s election.

“You get a sense among people that enough is enough,” said Darrell Steinberg, a Democrat who is the president pro tem of the Senate. “And frankly, there’s no choice. These cuts have done real damage. I know that, as one leader, I am not interested in making any more cuts.”

Dan Schnur, the director of the Jesse M. Unruh Institute of Politics at the University of Southern California, which oversaw the poll, said the findings suggested that voters were open to a tax increase.

“The poll results largely reinforce the local election results we saw,” he said, adding that “voters are a lot less reluctant to raise taxes when they are convinced that the money is going to be spent in their local community.”

Leaders of the state’s antitax coalition said they were confident that voters would continue to oppose any increases, no matter the severity of the cuts being imposed. “It looks like a $10 billion tax increase, and I don’t think there’s any way on God’s green earth that voters will approve that,” Jon Coupal, the president of the Howard Jarvis Taxpayers Association, said of the Think Long Committee. (Mr. Jarvis, who was a leader of the Proposition 13 campaign in 1978, died in 1986.)

Still, the backers of the Think Long plan said they have $20 million to run a campaign for their initiative. The committee is a powerful assembly of California figures, which could give it extra credibility in the fight. The members include Eric E. Schmidt, the chairman of Google ; Gray Davis, a former Democratic governor; Eli Broad, a prominent philanthropist; and two former United States secretaries of state, Condoleezza Rice and George P. Shultz, both Republicans.

The committee’s tax overhaul proposal, one of a series of reforms it is hoping to put before voters, is intended to produce about $10 billion annually to eliminate the state’s debt and return money to the publicly financed school and university systems. It would reduce personal and corporate tax rates, but expand the sales tax to services like those provided by lawyers and accountants.

The plan currently being discussed by Mr. Brown and Democratic legislators would raise about $6 billion with a temporary surcharge on the top 1 percent of wage earners and a sales tax extension, with the money directed to state prisons.

Some union leaders are pushing a similar plan that would raise closer to $13 billion. And a group of environmentalists, led by Thomas F. Steyer, the founder of Farallon Capital Management in San Francisco, has proposed an initiative to close a loophole that has allowed out-of-state companies to avoid paying an estimated $1.1 billion in taxes to California. That money would go to education and to make buildings more energy efficient, which backers say would create thousands of jobs.

Mr. Steinberg says his main challenge is to avoid overloading voters. “Our goal is to pull all these disparate efforts together into a solid, passable initiative,” he said. “Do I think the mood is right? I do. When you look at how the middle class has been squeezed — and you see it mostly around the higher education campuses — there is a recognition that you can only cut important investments so much.”

The pro-tax activity comes as an independent legislative budget analyst announced on Nov. 16 that revenues were falling dramatically below state leaders’ projections in passing a budget in June. Under the terms of that spending plan, if revenues fall short by at least $1 billion, up to $2 billion in spending cuts will take effect, including trimming the school year by a week. That report projected the state would face a $13 billion budget shortfall next year.

Proponents of tax increases here have been forced to use the initiative process because California law requires a tax increase to be approved by two-thirds of the Legislature, a legacy of Proposition 13, and Republicans have made clear they will not give Democrats the votes to cross that threshold. “The initiative process is one of the reasons California has issues, but it also allows changes to happen if the Legislature has difficulty acting,” said Nicolas Berggruen, a billionaire investor who is the head of the Think Long Committee.

Under a measure approved this year, all initiatives must appear on a general election ballot. Tax increase proponents have concluded that November 2012, with a high Democratic turnout expected in a presidential election, would be more favorable for these initiatives than in a nonpresidential year, when opponents of tax increases are considered more likely to vote.

“The November 2012 ballot is going to be the political equivalent of bumper cars,” Mr. Schnur said. “What we have seen historically is that voters who are overwhelmed or overloaded with things tend to vote ‘no’ on everything.”

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