How I Fear the 2016 Taxapalooza Will Go

Joe Mathews
Connecting California Columnist and Editor, Zócalo Public Square, Fellow at the Center for Social Cohesion at Arizona State University and co-author of California Crackup: How Reform Broke the Golden State and How We Can Fix It (UC Press, 2010)

Here’s my hope for the coming 2016 Taxapalooza of various tax-hiking initiatives: The debate will create a healthy discussion and convince various initiative sponsors, the legislature and the governor to come together and advance a tax reform that preserves our progressive tax structure, lowers some rates for competitiveness, taxes our service-based economy more fairly, and produces at least $20 billion a year in new revenues. The reform goes so well that everyone decides to rationalize the budget process and write a new constitution in 2017.

Here’s my fear: we get a warmed-over extension of Prop 30 that doesn’t make the state more competitive or make taxes saner or produce more revenues that we need to reverse decades of disinvestment.

I’m pretty sure my fears will be realized. Indeed, there’s a pattern to the even-numbered years of Brown’s governorship that likely could be repeated in 2016.

To understand the pattern, look at Brown’s “big wins” of his second go-round as governor: Prop 30 in 2012, and Props 1 and 2 in 2014. These are considered signature Brown policies, but in all three cases, Brown didn’t initiate anything. Instead, he took things that had already been proposed or advanced by others – and then made them smaller and less powerful. In journalistic terms, he is more editor than writer.

Prop 30 wasn’t his. He had a plan to hike taxes by initiative, but there were competing initiatives out there. One, advanced by a teachers’ union and other progressive groups, was pretty good – and, it’s worth noting, it combined progressive taxation (which makes sense in these times despite the volatility, because rich folks have so much of the money) with permanent changes in the rates. If only we had those permanent changes in the rates now.

But Brown entered negotiations with those initiative sponsors, which produced a compromise measure, Prop 30, which included temporary taxes. Californians have concluded this was better than nothing, though better than nothing hasn’t proved to be much. Schools remain badly underfunded, our universities don’t have the money they need to do their jobs, and health and human services programs remained starved – and our big liabilities in pensions and (most maddeningly, since it’s an unnecessary benefit in the era of Obamacare) retiree health benefits. In reality, Prop 30 was a huge missed opportunity that constrained smarter, better attempts to produce more revenues (and tackle other big problems) for the state for at least 4 years.

Prop 1 and 2 were the same way. There already was a bigger (and I dare say, better) water bond on the ballot for a state that needs much more water infrastructure. Brown slimmed it down with the legislature’s help into Prop 1. There also was a bigger, better rainy day fund that had been approved for the ballot (and then delayed); Brown instead gave us Prop 2, which limits the size of the state rainy day fund (and of school funds) while imposing a complicated new formula on top of a messy stew of budget formulas.

So what’s the most likely outcome in 2016? The tax initiatives will try to pressure and lobby Brown. And Brown will pick one – I suspect something very close to an extension of Prop 30 – and back that. And it will probably win.

And as a result, California will lose – as it locks in a strategy that can’t take us very far.

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