A Look at the Tax Future without a Crystal Ball

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

One should never look years ahead when doing political analysis but here goes one anyway after reading a couple of items last week about California’s tax situation.  One article had to do with the current status of the state’s revenue collection; the second contained a paragraph about a building effort to tax commercial property.

It was reported that California revenue collection is still ahead of projections. The State Controller’s February report says that revenue exceeded projections by $4.5 billion over the past eight months.

In the second article, a fawning profile of Governor Jerry Brown in Prospect Magazine, writer Harold Meyerson noted that a “coalition of unions, community organizing groups and other progressive organizations is researching how best to present voters with a ballot measure in 2016 that would repeal Proposition 13’s freeze on taxes on commercial property.”

With revenues coming in better than expected months after the voters approved a tax increase, why is the foundation for a future tax increase being laid, especially when the governor has given no signs that he supports such a move?

We’ll accept as a given that the supporters of a prospective “split roll” property tax increase on commercial property fall into the category of: Government can never have enough money. But, when you analyze it, you can see why this move is shaping up.

The supporters behind the split roll are not aiming at the 2014 ballot for logical political reasons. First, they don’t want to cross the governor. The governor would not be interested in having a major tax increase on the same ballot in which he runs for reelection. If, as some predict, the governor has little opposition in his reelection bid, voter turnout could be low. Supporters of tax increases feel they fare better with larger turnouts.

2016 would be a different story. No statewide officers would be running so they would not have to take a position on the tax. It will be a presidential election year, which probably means a larger turnout of voters.

But there is another factor coming into play. The Proposition 30 tax increase will have nearly run its course by 2016. The projected $6 billion a year tax increase runs through the 2016-17 fiscal year. The sales tax portion of the tax ends that year and the income tax continues for two more years bringing in less revenue overall.

A number of interests in the state do not want to see the revenue stream end. It is unlikely they would support continuing the sales tax. They could argue for continuing the income tax on high earners or raising the tax higher. Or they could go after businesses. The spending interests behind such a move will make the argument that big corporations would pay the tax, although it would clearly fall heavily on small and minority business owners. However, it is the bottom line that attracts the spending interests to a split roll tax. The Meyerson article cites a potential yearly take of $10-$12 billion or twice what the Prop 30 tax takes in during its peak years.

As I wrote at the beginning of this piece, making political and financial projections years in advance without a working crystal ball is a perilous exercise. But, it is possible to discern the shape of things to come and to be prepared.

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