A Tax Increase in 2012? Don’t Bet Your 1040 on it!
It looks like the biggest traffic jam in California next year may well be the various tax increases being pushed for the November ballot.
So far, at least five big tax measures are in play. Think Long Committee for California, a group of high-powered movers and shakers funded by billionaire Nick Berggruen, has proposed a $10 billion revenue increase by expanding the sales tax to services. A teachers’ union is advocating an income tax increase on those who earn more than $1 million annually to fund schools. Environmental activists are trying to generate $1.1 billion for clean energy by taxing out-of-state businesses. Another measure would tax oil and gas generation to help pay for education and state universities.
And then there’s Gov. Jerry Brown’s recently announced measure to temporarily increase the sales tax and bump up income tax rates for the state’s top earners. Brown had hoped to have a ballot measure last June to extend a temporary increase in income, sales and vehicle license fee rates that went into effect in 2009, but was unable to coax a single Republican legislator into voting even to put such an extension on the ballot. Hence, the tax increases have all expired.
There’s no way to know how many of these proposals will actually make the ballot, but if they all do, history is not reassuring that any of them will be approved by voters. When there is a bunch-up of tax hikes on the ballot, voters tend to mow them all down.
In 2006, there were no fewer than five tax-raising measures proffered to voters, Propositions 82 (in the primary), 86, 87, 88 and 89. That was hardly a fervent anti-tax year. Democrats nationally recaptured both the U.S. Senate and House of Representatives. Democrats won six of the eight statewide California constitutional offices, and even flipped a Republican-held congressional seat.
Further, four of the five tax proposals targeted the putative “bad guys” – Big Tobacco, Big Oil and big corporations, along with the rich. But all five were defeated. And Democratic gubernatorial candidate Phil Angelides, who had unfathomably staked his campaign on raising billions in taxes, went down in a humiliating 17-point defeat.
Another instructive, more recent precedent: In May of 2009, then-Gov. Schwarzenegger and the Legislature put on the ballot, inter alia, Proposition 1A, which would have extended the income, sales and vehicle license fee increases passed earlier that year to close the budget deficit – the exact same increases Brown had hoped to continue this year. That measure was demolished 65-35 percent by voters.
But wait, you may say, 2009 was a special election in the spring of an off year, when the most conservative, anti-tax voters are presumed to dominate. (It brings to mind the late GOP strategist Lyn Nofziger’s characterization of off-year elections as being “when all the off people come out to vote.”) But wait, I say, there is another, even closer parallel to the current situation that proponents of these measures should keep in mind.
In 1991, Gov. Pete Wilson and the Democratic Legislature installed two additional state tax brackets for “the wealthy,” 10 percent for those making from $115,000-229,999 per year, and a top rate of 11 percent for those making more than $230,000. But these tax hikes had a sunset provision and expired in 1995. The next year, a primarily labor-funded effort put a measure on the ballot to re-instate these higher tax brackets, Proposition 217.
Bear in mind that 1996, just like 2012, was a presidential election year, when the turnout of Democrats and minorities almost always spikes. In addition, there was a sitting Democratic president of the United States, popular in California, who was running for reelection. It also would have allocated most of the revenues to the ever-popular education. And Prop. 217 was on the November general election ballot, not the primary ballot or a special-election ballot. Does this not sound like a very close cousin to the electoral circumstances in 2012?
But although Bill Clinton beat Bob Dole that year by 13 percent in California, Prop. 217 went down to defeat (albeit barely, 49.2 percent to 50.8). According to the Los Angeles Times exit poll, Democrats constituted 45 percent of the turnout in the ‘96 general election, and self-described liberals and moderates comprised 68 percent of the voters. Also, voters earning less than $75,000 a year were 74 percent of the turnout – and hence would not even have been affected by the higher tax rates. So much for the 99 percent taxing the 1 percent.
None of this history is absolutely determinative, of course, and voters did pass a tax on millionaires in 2004 to fund mental health services. But this review of recent antecedents provides no great sense of assurance that either the governor’s tax proposal, or any of the others if they make the ballot, will be looked on kindly by the voters. This is still California, the home of Proposition 13, the nation’s first tax-limitation law.
I believe the state of California does need new revenues to deal with its long-running systemic budget problems. But particularly if more than one of these measures hits the ballot next year – or all of them, God forbid – California voters might be excused if they recall the words of that great anti-tax agitator, George Harrison (in the Beatles’ “Taxman”):
If you drive a car, I’ll tax the street,