What Should Not Happen Next
The voters have spoken. All the ballot measures of major fiscal consequences went down to defeat. Most pundits agree the defeat of the key measure, Proposition 1A, was due to the fact that tax increases would be extended for two years.
So what happens on the tax front now?
Taxes will suddenly be referred to by their “nom de plume”: Fees. The voters will not be fooled. If they don’t want taxes they won’t want fees, either. Fees are often aimed at certain products and the added fees drive up the costs the consumers ultimately pay. Fees, in many cases, are disguised taxes.
Another thing we’ll probably see is an attack mounted against the two-thirds vote requirement to raise taxes and to pass the budget. Undoubtedly, the majority in the legislature want both lowered. They may say they just want a majority vote for the budget but that plan has a weakness. See the discussion about Fees, above. If the budget is a majority vote then majority vote fees will be recruited to fund the majority vote budget.
California’s Denomination Effect
Voters refuse to solve the state’s financial problems with gimmicks or tax increases. That’s the clear and unambiguous message from the defeat of Propositions 1A-1E. Less clear- to voters or budget planners- is where we go from here. With borrowing and tax increases off the table, where do we find a solution to the state’s $21.3 billion budget deficit?
The latest copy of the Journal of Consumer Research. Where else?
In studying consumer spending habits, economists Priya Raghubir and Joydeep Srivastava discovered that people are more likely to spend money if they are given small denominations.
"We’ve done some studies with four quarters and a dollar, and we found that people were much less likely to spend the $1 note that they were given than the four quarters they were given," Raghubir explained to National Public Radio on May 12th.
The Next Steps for California
Just as they did so when they defeated the Reiner Initiative in 2005 and rejected Gray Davis’ tripling of the car tax, California voters once again rejected calls for more taxes in yesterday’s statewide special election.
The writing was on the wall from early on – Rasmussen Reports indicated that 73% of Californians opposed income tax increases and 69% opposed sales tax increases. In addition, 69% of respondents believed that major cuts in government are the way to balance the budget, while only 16% opposed them. Given the voter registration statistics in this state, those response rates constitute a solid consensus across party lines and a clear message that it is time for the politicians to offer a new direction for California.
Even in the face of adversity, with our legislators facing another multi-billion dollar deficit, there are some simple steps that can be taken to rebuild trust with the people of California.
Mini-Prop 13
Ironically – but perhaps fatefully – Proposition 1A lost by about the same margin by which Proposition 13 prevailed: 30 points. Many things are different between yesterday’s election and the one held in June, 1978, but they certainly have this in common: the lessons that elected officials take from voters will have big consequences down the road.
In 1978, Proposition 13 not only brought tax skepticism to the top of the political order, but the then-“obscene” budget surplus allowed the Legislature to soften the blow to local governments, thereby postponing the day of reckoning and creating entanglements between state and local and school finances that bedevil us to this day.
In 2009 it is now the budget deficit that is obscene. The Legislature will choose from among many options to address this challenge, but the lesson from 31 years ago is that the most expedient choices may create even more intractable problems in the years ahead.