Proposition 55, which would extend the Prop 30 taxes on high-income Californians for another 12 years, renews a puzzle that California has been facing for more than a decade.
That puzzle: Should we go for a small temporary tax increase that plugs a budget problem temporarily? Or hold out for smarter tax reform that produces more stable revenues going forward that allow California to tackle bigger challenges, from infrastructure to education?
Prop 55 represents Round 3 of the fight over these two related questions.
Round 1 came in 2009, when Gov. Schwarzenegger called a special election for a package of legislative budget measures. The lead measure was a temporary tax increase to help make Great Recession cuts to the budget less brutal.
In that round, moderates embraced Schwarzenegger’s temporary measure, but the right opposed it (because of the tax increase) and the left opposed it too (because they thought they could get more money with a future ballot initiative and governor). It lost.
Round 2 came in 2011 and 2012. First, the left, backed by Gov. Brown, sought a series of tax changes in the legislature. That didn’t work, because of Republican opposition. So Democrats settled for a temporary measure – Prop 30, with temporary increases on high incomes and sales taxes. And this time the voters went for the temporary patch.
Prop 55 is Round 3. Should we extend part of that Prop 30 patch (the income taxes on high earners—the sales tax increase is going away)? Or should we hold out for something more stable?
After many years of this debate, there’s a new question. Are the temporary patches like Prop 30 and Prop 55 delaying the larger tax reform the state needs.
In a very important (and surprising) editorial, the San Francisco Chronicle came out against Prop 55 recently. And it did so by arguing that another patch didn’t guarantee education funding—and was a distraction from tax reform.
“California’s essential services, most notably education, deserve a more stable funding source to avoid the types of draconian cuts that were inflicted during the recession.,” the Chronicle editorialized, adding: “We agree with the Prop. 55 proponents that California schools need much greater state investment to return to the era when they were the nation’s envy — and that commitment needs to endure through good times and bad… Our issue is not with the goal of Prop. 55, it is with the dubious means of achieving it.
The editorial concludes: “The state cannot continue to just keep putting patches on a tax structure destined to periods of undue destitution. Our legislators and governor need to do the hard but essential work of reforming the tax structure with measures such as extending the sales tax to certain services and addressing some of the inequities in property tax, especially its treatment of commercial property.
“Prop. 55 represents another big patch for a precarious tax structure, and one big excuse for elected officials to continue avoiding a comprehensive tax reform that actually could allow sustainable investments in our schools and other priorities.”
The Chronicle’s conclusion is that Prop 55 should be rejected. I agree with their argument – it’s time for the bigger change – but I’d rather not roll back the taxes on upper income Californians, since they have all the money.
So count me undecided. I’ll vote for Prop 55—if I see a real ironclad commitment by the governor and legislative Democrats to reform the tax code. I’d urge groups considering Prop 55 endorsements to take the same line.