Soda Tax Ban, Pension Taxes, and Future Tax Wars

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

Much of the discussion around the proposed deal to remove an initiative requiring a two-thirds vote on all local taxes centers on the motives of the soda industry to avoid taxes on soda but there is another side to that coin that has received little attention. Local governments and unions opposed to the initiative want the leeway to raise taxes to deal with pension obligations that are eating away at local services.

One of the leading opponents of the initiative, SEIU, issued a release claiming the “temporary pause on further local soda taxes gives California the opportunity to work on a statewide approach to the public health crisis of diabetes.” Everyone would like to see a reduction in diabetes but if you believe the union has this issue as a top agenda item I have that bridge to sell you. Opposition from the unions stems from a pension crisis.

One root cause of this initiative measure can be traced back to a California Supreme Court decision in California Cannabis Coalition v. City of Upland. The court ruled that if taxes came to the ballot via initiative a simple majority vote was needed to pass the tax regardless if the tax revenue was earmarked for a specific purpose. Taxpayer concern stemmed from the fact that local governments could work with special interests to put a measure on the ballot for a good sounding cause—police services or libraries, for example– and then move money within the budget to cover other employee related costs.

The “Tax Fairness, Transparency and Accountability Act” would require acknowledgement on where the new tax dollars are spent, including covering employee costs. If the deal is consummated with SB 872 signed into law putting a soda ban in place for 12 years and the initiative is pulled, opportunity remains for taxes to be placed on the local ballots that can pass with a simple majority vote. While government budgets are as high as ever, so are the pension obligations and they are threatening governments’ service obligations. Expect a wave of new tax measures.

One interesting note about the proposed deal: the ban on soda taxes is supposed to end in a dozen years, 2030. That is the same time that the extended income tax on the wealthy is supposed to sunset. 2030 is setting up as the year of tax wars.

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