Gov. Gavin Newsom did not include a broad tax increase to help balance the state’s budget but that doesn’t mean we will not see attempts by the legislature to raise taxes.
Such a big hit to the economy that led to the $54 billion budget problem is not the time to increase taxes. If the goal is to bring the economy back, which in turn would grow government revenues, raising taxes would throw a wet blanket on the recovery. However, the political dynamics of California must be examined to decide if legislators feel they have a chance to raise taxes through the legislative process.
Going the ballot route is not promising. Even before the economy was slammed by the pandemic, California voters showed their disdain for tax increases on the March primary ballot.
The only statewide bond dedicated to the usual sure thing of school construction and maintenance went down to defeat as did about 60% of local taxes and bonds.
History is not on the tax raisers side, either. In the heart of the Great Recession, the legislature and governor put a tax increase measure on the ballot to help offset the budget shortfall, but the measure lost by a two-to-one margin.
So, if any tax increase is to happen it would have to come out of the legislature.
It would certainly seem unlikely but since California is firmly a one-party majority state with the Democrats controlling about 75% of the legislature and most of the seats safe from falling into Republican hands, Democrats just might feel safe in pushing a tax increase.
Under Article II Section 9 of the California Constitution, tax increases cannot be subject to a referendum, so if taxes become law they will be hard to remove.
Two obstacles, though: the two-thirds vote required by Proposition 13 and the governor.
Even with supermajorities in the legislature, some Democrats could find themselves in jeopardy if they support a tax increase. While, leadership could let a few off the hook in the final vote, the opportunity to secure a two-thirds vote narrows, especially in the Senate.
The idea of raising taxes in difficult times may make some members of the majority hesitate to push the yea button. Tax revolts are not uncommon in California.
If a tax manages to achieve the two-thirds margin will the governor sign it? The Democratic governor is also in a safe place according to most analysts; however, economic disruption can change matters quickly. If a tax increase is viewed negatively by the electorate there will be a political price to pay. Newsom would have to weigh that against the pressure to find more revenue.
Taxes will be discussed, but in the end, I believe that road will not be taken.