Unsure and maybe on Prop. 55

Proposition 55 is ballot measure to extend part of a temporary voter-approved tax for another twelve years. Presumably there will be another vote to extend at that time.

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In 2012, voters approved Proposition 30, w hich did two things: it increased the state income tax for individuals making more than $250,000 (adjusted for inflation) ($500,000 for couples), and it increased the sales tax. Both the sales tax and the income tax were set to expire in 2018.

Proposition 55 extends the *income tax increase* to 2030 and allows the sales tax increase to lapse.

Compared with the situation if the measure isn’t passed, the Legislative Analyst’s Office thinks that the measure will result in $4-$9 billion more in revenue a year, half of which is allocated to schools, $0-$2 billion of which could be diverted.

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The text of the ballot measure takes up a lot of space in the ballot pamphlet, but a huge chunk of that is reproducing the embedding context for the change – Article XIII,  Section 36 of the state Constitution is reproduced in its entirety. From what I can tell from reading it, the measure makes these actual changes to state law:

(a) it extends the income tax increase until 2030 (and extends some accounting provisions similarly)

(b) it changes the rules for the income tax increase to allow some of the money to be diverted from education to health care programs.

(c) it changes the overall budget rules to say that, if general fund revenue exceeds both the amount Proposition 98 requires the state spend on schools AND the total cost of programs in place on 1/1/2016, half of the excess is required to be spent on Medi-Cal.

The middle point requires some explaining.

Under the terms of Proposition 30 (and generally required by state law), half of the money raised by the income tax increase is allocated to education (with much of the rest going to local public safety programs). Proposition 30 would allow some of the money allocated to education to be diverted to health care “in order to enhance the ability of all California school children and their families to receive regular, quality education and thereby minimize school absenteeism due to health-related problems.” The diverted funding “shall be used only for critical, emergency, acute, and preventive health care services to children and their families.”

Money can be diverted if, and only if, Proposition 30 causes general fund revenue exceeds both the school spending required by Proposition 98 *and* the total cost of general fund revenues

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The official argument for the initiative, written by the President of the state PTA, argues that this is required to avoid devastating health care cuts. The rebuttal complains that extending a temporary tax makes it not temporary, that there won’t be education cuts if the measure doesn’t pass, and that extending the tax will kill jobs, close businesses, and hurt the economy.

The official argument against the initiative, written by the President of the Howard Jarvis Taxpayers Association, argues that temporary should mean temporary, that the presence of a budget surplus means we don’t need higher taxes, that the measure targets small businesses and will kill jobs, and that the untrustworthy politicians and special interests are just trying to feather their nests. The rebuttal argues that the measure doesn’t raise any taxes, prevents cuuts, and is immune to corruption.

As usual, both sets of arguments set my teeth on edge.

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The proponents of the initiative have a point: the expiration of a temporary tax increase *must* result in a reduction in spending unless either (a) a replacement source of revenue is identified or (b) the state is allowed to use its budgetary reserve fund to supplement. The presence of a surplus, contrary to the disingenuous argument of the HJIA, doesn’t change this – the surplus was deliberately constructed so as to *allow* the growth of a budgetary reserve fund, largely as a result of policies the HJIA pushed for, and wise fiscal stewardship would not allow either cutting into the surplus OR cutting into the budgetary reserve. So opponents are *lying* when they say there will be no cuts if the measure fails to pass; there will be.

On the other hand, the opponents have a point: Proposition 30 was sold as a *temporary* increase, and so is Proposition 55. But Proposition 55’s presence on the ballot in 2016 strongly suggests that the Governor and his allies were lying in 2012 when they said Proposition 30 was temporary, and also strongly suggests that the proponents of Proposition 55 are lying when they say *it* is temporary; the temporary tax provides revenue to education and other important programs, the programs in question use the revenue to underwrite ongoing costs rather than on one-time costs, and the expiration of the tax causes a panic about the potential side effects of losing the revenue on which they have become dependant – causing a ballot measure to extend the tax. So why portray it as temporary?

The cynical answer is that the proponents think that portraying it as temporary increases the likelihood that the voters will approve it; but if the proponents know, as they must, that a temporary tax increase creates a dependence on revenue which creates pressure to extend the tax, then they are being intentionally misleading in portraying it as temporary — even if the temporary nature is written into the law.

On the other other hand – the opponents claim that this tax *increase* will kill business is difficult to believe, because it’s not an increase at all, but rather an extension. The businesses which would be killed are *already* paying the tax, and so if paying the tax would kill the business, it would already be dead. The claim makes a bit more sense if it is limited to those businesses which have been surviving paying the tax but have been dependant for that survival on the tax vanishing at the end of 2018 — but that’s not going to be very many, if any at all.

It’s this kind of thing, where both campaigns are fundamentally based on misleading me, that leaves me tempted to throw up my hands and refuse to vote. I won’t, because I have a responsibility to do so, but it’s *tempting*, and the campaigns make me angry.

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That said, I don’t know how I’m going to vote on this one.

On the one hand, this measure contains a provision specifically allocating revenue to a specific program, which is generally a bad idea because it deprives the legislature of flexibility to respond to emergencies or changing priorities, and makes the overall business of budgeting more complicated and difficult than anyone wants it to be. There are cases where I’ll put that aside – I’m most likely to do that when it forces people to internalize costs they are currently imposing on someone else – but the specific allocation of a broad-based income tax isn’t one of them.

On the other hand, this measure extends an already existing tax and, if that tax expires, things which are currently paid for will no longer be paid for. The 2012 electorate held a figurative gun to the head of the 2016 electorate and is threatening to shoot us if we don’t extend the tax.

I wasn’t a California voter in 2012; I don’t know how I would have voted on that measure then. But today, I resent the 2012 electorate, and the politicians who wrote and campaigned for Proposition 30, for not having the courage to sell a permanent tax. The bill for that is due, and we are paying it.

I dislike the politics of ransom. I dislike the situation where a currently existing program is going to expire unless the voters compromise and pass the bill in front of us regardless of its flaws.

And yet: here we are. However much it’s true that paying a hostage-taker simply encourages the taking of more hostages, and however much it’s true that voting to extend this tax just increases the likelihood of the same obnoxious technique being used in the future, the fact remains that the public schools *will be hurt*, and local public safety programs *will be hurt*, if this measure does not pass.

By how much, I do not know.

One way out is to note that this isn’t the last shot we have; we can vote this down, demand the Legislature produce a better initiative, and vote on it again in 2018. But, unless I believe the 2018 initiative will not contain the same “allocate money to specific programs” flaw that this one does, that’s just postponing the problem and kicking the can down the road. I’m still going to have to make the same decision – vote against the measure because of its flaws, or accept that politics is about compromise and vote for the compromise under duress.

It would help if I had a good notion of how bad the damage would be, if the measure is defeated; but I don’t, because the activists pushing the measure proclaim DOOM and the activists opposing the measure make the ridiculous claim that no harm will be done. I don’t have the time, skill, or inclination to obsessively research state education spending, so at the moment I’m spinning my wheels on this initiative, unsure of where I’ll fall.