Reading and listening to (and hearing some background talk) about what sort of tax plan the state’s leaders might offer voters next year, two things are clear to me.
The first is that we will see an extension of at least the income tax rates that were part of Prop 30. The second is that we will see one other tax hike that is packaged as a tax reform to accompany the extension.
Call this “Prop 30 Plus.”
The Prop 30 extension will drop the sales tax while keeping the tax on high-income Californians. It’s likely that Prop 30 rates won’t be made permanent—they’ll just be extended for several more years. This shouldn’t be a hard sell politically. Somebody else gets taxed, and Prop 30 remains a popular idea (It’s easy for politicians to tell voters they did the right thing).
Also, those debating the question behind closed doors seem to have concluded that a broader tax reform or hike would be harder to sell if Prop 30 goes away. The logic: you can’t be making tax changes that raise taxes on, say, oil or services that everyone uses if you’re rolling back Prop 30’s tax increases on higher earners. Liberals (and perhaps others) would revolt.
So the real contest is over what tax plan will occupy the “Plus” decision in Prop 30 “Plus.” And in an intriguing (and, by my lights, frustrating) way, the debate is becoming less about what the best tax policy should be for the state – and much more about what tax policy would work best politically in combination with Prop 30.
For example, a broader tax reform that taxes more of the economy, while bringing in more money and maintaining the progressive nature of taxation might make the most sense if the debate were about what tax program is best. But since the plan is to pair any plan with Prop 30, a broad reform like that could fall victim to the idea that the state is too dependent on the highest wage earners, especially under Prop 30’s rates.
So instead, the “plus’ might be something more limited – sin taxes. Or a more modest reform of the sales tax. Or other changes around the tax edges.
If things turn out this way, I’ll be the first to say I told you so. While most of the state saw Prop 30 as a godsend, I opposed it – as a missed opportunity. I said that not because I oppose higher taxes – the state’s governments need more money after more than a generation of underinvestment – but because the state needed permanent changes to create a higher funding base with fewer distortions. (Prop 30 is a temporary tax piled on top of a broken system).
And so I saw Prop 30 as robbing the state of an opportunity in 2012 –when voters were ready to support taxes – to make bigger changes.
Maddeningly, Prop 30 remains in the way of deeper redesign and change. And it looks like Prop 30 might stand in the way of smarter taxation that provides more in money to invest in the state for a very long time.