A column by journalist David Cay Johnston in the Sacramento Bee re-visited arguments made by opponents of the Proposition 30 tax increases – including me – that jobs would be killed if the taxes were increased. As pointed out in the article, California has increased jobs since the taxes took effect.
However, it was not an unreasonable assumption to make, as I’ll discuss below and there is a question how many more jobs we might have if the taxes had not passed. Another Bee column by Board of Equalization member George Runner argues that the tax increases might have prevented even greater job growth that should be expected from a surging economy.
Johnston took our No on 30 position from the state’s voter information guide rebuttal argument when he quoted the argument that Proposition 30 “hurts small businesses and kills jobs.” As he correctly points out there are more jobs now.
The Prop 30 debate was not only about taxes and jobs as our campaign made clear –we wanted no taxes without reforms. With reforms to make better use of taxpayers’ dollars and control spending, many of those opposing Prop 30 would accept some temporary taxes.
In fact, in the line before the one Johnston cited from the voter information guide, our argument urged not to give “Sacramento politicians a blank check without requiring budget, pension or education reform.”
On this site, I argued for passing Proposition 1A in the 2009 Special Election ballot that included a temporary tax increase coupled with the reform of a rainy day fund. (Voters will finally get a chance to approve a rainy day fund in the November election.)
I also counseled a legislative compromise of putting both taxes and spending reforms on the ballot when Governor Brown was negotiating with Republican leaders for solutions to the state’s budget deficits prior to the ballot initiative that became Proposition 30.
Our campaign was about concern for the economy, and therefore a concern for lost jobs, that prompted major opposition to the tax increase without reforms.
We have the tax increases now, however, few reforms have been put in place. California is still looking at staggering debt and pension obligations that could eat away at funds for basic services and put enormous pressure on taxpayers.
Taxes do affect economic activity. Johnston pointed out in his article that some taxes could kill jobs. When California passed an income tax increase in the early 1990s, revenue collection was below what had been predicted. Advocates for increased taxes on cigarettes and soda, for example, say increasing taxes will reduce consumption – the theory being when you raise taxes you get less of what you are taxing.
The reverse certainly has been recorded on income taxes, most notably during the John Kennedy and Ronald Reagan years, when cutting high income taxes helped lead to a surge in the economy.
We reasoned that increased income taxes at a time when the state was struggling to rise out of a recession could hurt the economy and produce a job loss, especially because small business people, who drive the engine of the economy, pay their taxes on their business activity through their income tax. Not an unreasonable position.
However, as the record shows there was job growth since the election.
Of course, the state is not home free because of the tax increases. As reported by the California Center for Jobs and the Economy, while unemployment is down (but still fifth highest among the states), the labor force has shrunk compared to a year ago, middle class jobs are still below pre-recession levels and we are suffering a two-tiered economy in which some parts of the state are doing well where other parts of the state languish with high unemployment.
How many more jobs might have been created if Prop 30 did not pass is impossible to measure. A Los Angeles Register editorial yesterday states that California payroll employment increased 1.6 percent from November 2012, which was actually down from the increase of 1.9 percent increase in payroll employment from November 2011 to November 2012.
Was the pace slowed because some jobs were killed by the tax increase?