Voters are right to be wary of “temporary” tax hikes, and California’s Proposition 30, which passed in 2012, is no exception. Democratic lawmakers are already talking about the possibility of an extension of the tax increase, either through legislative action or in the form of a 2016 ballot measure.
California fell into a significant budget deficit on the heels of the Great Recession. Between 2007 and 2008, state revenues fell by $25 billion, mostly due to decreases in personal income, corporate and other taxes. Social programs, K-12 and higher education were all headed for drastic cuts, so Gov. Jerry Brown helped place Proposition 30, or the Schools and Local Public Safety Protection Act, on the ballot.
The measure was a 0.25 statewide sales tax increase and an income tax increase for individuals making over $250,000 annually – set to expire in 2016 and 2018, respectively. If Proposition 30 had not passed, there would have been automatic “trigger cuts” to K-12, higher education and public safety. To be specific, K-12 funding would have been cut by $5.4 billion, the University of California and California state systems would have lost $500 million, and there would have been a $1 billion cut to public safety services.
After thoughtful consideration, the Valley Industry & Commerce Association decided to support Proposition 30 to avoid those devastating cuts, largely because of the measure’s sunset provisions. The measure passed with 55 percent of the voters’ approval.
Proposition 30’s passage stabilized school funding for the first time since the Great Recession, and prevented thousands of teacher layoffs. The Legislature balanced its budget after years of instability, and without cutting programs. Gov. Brown proposed a budget with a projected surplus of over $5 billion, and the year-to-year gaps between state spending and revenues have been erased for the time being.
Proposition 30 has wholly done its job, a rare outcome for tax increases. Recently, California’s nonpartisan Legislative Analyst’s Office reported that the expiration of temporary tax hikes over the next several years would not result in a ‘fiscal cliff’ as some have feared. Thanks to an economy reliably on the rebound, the state will be able to weather the major loss in tax revenue – Proposition 30 raised an extra $6 billion a year.
The Legislative Analyst’s Office also estimates that the state will have $4.2 billion in reserves at the start of the next fiscal year, which will begin in July. Proposition 2, which voters passed on Nov. 4, requires that $2 billion of that money be deposited into California’s savings account. A large chunk of the state’s surplus will be spent on public education, which should assuage any worries about schools running into trouble once Proposition 30 expires.
Gov. Brown, whose efforts got Proposition 30 placed on the ballot back in 2012, has indicated that when he said the tax hikes were temporary, he meant it. Still, there has been buzz from some Democrats – notably from Superintendent of Public Instruction Tom Torlakson and Senator Mark Leno. Sacramento Councilman-turned-Assemblymember Kevin McCarty has called Proposition 30 a “tourniquet,” and supports making the measure permanent.
With a huge budget surplus, a positive outlook from the Legislative Analyst’s Office, and Gov. Brown in favor of his own effort expiring, why are some legislators already campaigning for Proposition 30’s extension? Considering the electorate’s general skepticism toward tax increases, shouldn’t it be easier to find funding for education and public safety in our now-flush budget? It doesn’t seem like it would require much creativity.
VICA believes that temporary tax hikes should remain temporary. Extending Proposition 30 sets a dangerous precedent for tax increases, and is unfair to voters and Californians in general.
The Valley Industry and Commerce Association is a business advocacy organization based in Sherman Oaks that represents employers throughout the Los Angeles County region at the local, state and federal levels of government.