Raising the White Flag to the “Tax and Spend” Interests Behind Prop. 55

David Kersten
David Kersten is president of the Kersten Institute for Governance and Public Policy (www.kersteninstitute.org). Kersten is also an adjunct professor of public finance and economics at the University of San Francisco.

There are some who believe that the passage of Prop. 55 is inevitable, the measure can’t be beat.

Maybe these folks have been right all along.  But maybe they have really been just too afraid to take a strong stand against Prop. 55, for fear of fighting a losing battle.

However, I would argue that fighting the battle against tax increases, even if you lose, is perhaps the most important thing that the California business establishment and taxpayer interests can do in the state’s current political environment.

Every able-bodied taxpayer must stand and fight, or signal surrender to an enemy which will take no prisoners.  If allowed to achieve absolute political dominance, the tax and spend interests behind Prop. 55 would not leave a single dollar left in your pocketbook, or that of any taxpayer of any type of means in California. 

The Wall Street Journal, perhaps too quickly, has dubbed this scenario the “terms of surrender in California’s tax revolt” in the headline given to a thoughtful piece by Joel Fox on the current state of affairs with regard to taxation in California nearly 40 years after the “tax revolt.”

Fox, who publishes Fox & Hounds Daily, correctly asserts that California’s growing pension debt, now pegged at more than $1.5 trillion, is what is really driving the need for higher taxes in California, particularly at the local level of government where roughly 2/3 of all state money ends up.

Unfortunately, with regard to Prop. 55, it appears that just about every taxpayer and organized political interest in California has chosen to wave the white flag and concede defeat to the state’s all powerful public employee unions and hospital interests—the two most powerful driving forces behind the never ending impetus for higher taxes in California.

I took this campaign on knowing full well that it would be an uphill battle, and was unwilling to allow Prop. 55 to go completely unopposed even if it meant running a largely volunteer campaign.  Alternatively, proponents of Prop. 55 stand to collect in excess of $100 billion over 12 years if Prop. 55 passes, so they have had no trouble raising the $60 million plus that they have spent to try to fool voters into passing Prop. 55.

To put it lightly, fundraising for the No on Prop. 55 Campaign has been a challenge.  I have made hundreds of fundraising calls for the No on Prop. 55 Campaign, and what I have discovered is perhaps one of the most disheartening things that I have learned about California’s future.

That there are very few people left in California who have both the guts and inclination to stand up to the far-left political establishment that continues to tax Californians, all Californians not only small businesses and individuals, at higher and higher rates, while providing a declining level of services in return.

This resignation alone, if sustained over time, signals the beginning of a very dark future for the State of California.

In short, there is essentially nobody left, with both the financial means and political acuman who will challenge the complete lack of justification for higher and higher taxes in California, and accountability for how taxpayer dollars are spent.

Where is the California Republican Party?  Where is the California business community?  Where are the wealthiest 1% who stand to lose billions if Prop. 55 passes?

The California Republican Party has done a lot to oppose Prop. 55 but generally follows the lead of the business community, and is more focused on legislative races which is understandable given what is at stake this election for the future of the party.

The California business establishment essentially signed off on Prop. 55 in August by deciding not to fund a big budget oppose campaign.  That is largely because Prop. 55 is good for big business which backs the Sacramento business lobby, because it represents a tax on small business and is thought to help ward off higher taxes on big business for at least a few years.

To be fair, some California business leaders have be quoted as saying that they gave Prop. 55 a pass but that they will strongly oppose all future tax increases on the California business community.   Of course, small business and individual taxpayers, which compose the vast majority of all taxpayers in the state, will still be highly vulnerable to further tax increases unless they can become better politically organized and develop the capacity to mount a bigger political threat.

Business elites have been quoted as saying that many business leaders are afraid to oppose Prop. 55 for fear of retaliation by the Democrat-controlled Sacramento political establishment.  Others say they don’t want to waste their money on something that is a foregone conclusion.  Both concerns contain some validity, but doing nothing is by far the worst option of all.

Not opposing Prop. 55 was a gross miscalculation, and is likely to cost the business community far more in the long-run than the millions of dollars they would have had to invest for a credible No on Prop. 55 Campaign.

The passage of Prop. 55 will only embolden the tax and spend interests who are behind Prop. 55 and currently dominate California politics.  Moreover, not challenging what is essentially a general tax increase, at a time when tax revenues are at all time highs, was a questionable decision at best by both the business community, taxpayer interests, and other major political stakeholders.

Waving the white flag on the biggest tax increase in California’s history, on the order of $8-11 billion per year, signals to the tax and spend establishment that they have won, and that they should move in for the kill.

Failing to oppose a tax increase on this order sends a message to the public employee unions who dominate the California political scene, that they now have free reign to propose as many and as high taxes as they want at both the local and state levels of government to greatest extent feasible under current law.

The only thing standing in their way are a few constitutional protections left over from the “tax revolt era” dating back to the late 1970s and 1980s, but those protections are increasingly threatened given the direction the California political climate is heading.

In November 2016, California Republicans could potentially lose enough seats in the California Legislature to lose their ability to block state tax increases, which require a 2/3 vote of the Legislature.

This would essentially give the California Democrat Legislature, and Democrat Governor, carte blanc to enact even higher and higher tax increases—only the sky will be the limit with the full weight of a “coercive” government and legally authorized taxing agencies behind them.

This new Legislature will surely bring more and more illegal aliens, convicted criminals, and deceased or “fictionary” voters onto the voting rolls to further help secure the Democrat supermajority, thereby pushing taxes even higher.  Of course, all this would be done under the guise of “expanding access to the Democratic process” and fighting discrimination—but the result is the same—a surge in the voting base of the California Democrat Party.

Raising taxes in California, could soon become akin to going to the ATM or buying a gallon of milk–something done routinely, often, and without question.

Tax and spend interests have already been plotting for years to roll back Proposition 13 protections by enacting a “split roll” property tax—which would increase taxes on businesses and homeowners by more than 100 times in many cases, sending the state back to the pre-Prop. 13 era of skyrocketing tax assessments.

The passage of Prop. 55, would surely open the door to a stronger split-roll proposal, possible rollback of more Prop. 13 protections, and likely embolden additional efforts to raise taxes at both the state and local levels of government in California.

The truth is that Prop. 13 and California taxpayers need more protections, not less, and perhaps a ballot measure that requires a 2/3 vote, or even  3/4 vote to raise taxes for the purposes of funding “unsustainable” public employee pensions, and/or the outright gifting of public funds to private parties without serving a legitimate public purpose, particularly the public employee unions and hospital interests, as done in Prop. 55.

The alternative is that at some point in the not so distant future, the only option the business community and wealthy taxpayers will have in California is to run for the hills of the Sierra Nevada, or purchase that one-way ticket to Arizona, Florida or other more taxpayer-friendly neighboring states.  Or consider leaving the United States altogether, relocating to tax haven countries.

I have always believed, perhaps a bit too optimistically, that Prop. 55 can be beat if the truth gets out there.  But the lack of enough taxpayers, or virtually anyone with ample resources, who are willing to stand up for what is right and put their money where their mouth is has been the biggest barrier to a strong opposition campaign against Prop. 55.

In the closing days of the election, the No on Prop. 55 Campaign is hoping to make one final push to defeat Prop. 55.  The campaign has amassed some potent opposition research on Prop. 55, but we currently lack the resources to get the message out.

The choice is simple, either fall on your sword now and resign yourself to higher taxes as far as the eye can see, or decide to stand up and fight for a vision of a truly Golden State that has the ability to sustain a healthy business climate, private enterprise and investment, and livable tax rates.

Because if nobody decides to stand up, all is truly lost in this state which once held so much promise and actually gave birth to the “tax revolt,” a historic grassroots movement characterized by the decision by legions of California taxpayers to collectively take a stand against unfair and unsustainable taxation.

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