There’s a ditty that captures Californians’ attitudes about taxes: “Don’t tax yourself, don’t tax me, tax the guy behind the tree.”
This explains why California voters are generally willing to impose new taxes on the state’s wealthiest residents and why the state has, by far, the highest income tax rates of any state, reaching 13.3%.
In this century, the syndrome has manifested itself in three elections, beginning in 2004 when Darrell Steinberg, then state legislator and now Sacramento mayor, and mental health advocacy groups proposed increasing one percentage point tax rate on income over $1 million to expand services for the mentally ill.
Eight years later, in 2012, Governor Jerry Brown sponsored a ballot measure that added four new tax rate brackets on incomes over $250,000 for seven years, saying the proceeds, about $6 billion dollars a year, was necessary to maintain the solvency of the state budget.
Four years later, a coalition of public servant unions and program advocacy groups backed another measure to extend Brown’s temporary raise until 2030.
All succeeded, in part because the wealthy who would pay the additional taxes mounted no opposition campaign.
Once again, California voters are being urged to impose more taxes on high-income taxpayers, but this time the dynamic is markedly different.
Proposition 30, primarily sponsored by transportation services company Lyft but with support from environmental and health groups, would raise the rate on earnings of $2 million or more by 1.75 percentage points, pushing the rate to the lowest. California’s highest at just over 15%. Proceeds would support climate change resilience efforts.
This time, however, wealthy Californians are making significant donations to a campaign against the measure. At least one reason could be that under a 2017 federal tax overhaul, they can no longer deduct state and local taxes (SALT) over $10,000 on their federal tax returns.
In effect, this means that high-income California taxpayers are now bearing the full brunt of state tax increases. The SALT cap also encourages some of the state’s wealthy to leave California for low-income or tax-free states such as neighboring Nevada, Texas or Florida – electric car mogul Elon Musk is the most spectacular.
House Speaker Nancy Pelosi and other Democratic politicians have tried to scrap the SALT deduction limit on behalf of California and other high-tax states, like New York, but have so far failed.
This week saw another unusual wrinkle in the perpetual effort to raise taxes on the wealthy: the campaign against Proposition 30 aired an ad in which Governor Gavin Newsom denounced the measure, citing Lyft sponsorship.
“Don’t be fooled. Prop 30 was announced as a climate initiative,” says Newsom. “But in reality, it was designed by a single corporation to funnel state income taxes to benefit their business. Simply put, Prop 30 is a Trojan horse that puts corporate welfare above the fiscal welfare of our entire state.
This bolsters the opposition campaign’s claim that Lyft wants new money for climate change programs because it would subsidize a state mandate that it and other transportation companies are converting their fleets to zero-emission vehicles.
Newsom’s opposition is just one of the odd bedfellows in the campaigns for and against Proposition 30. His Democratic Party has endorsed the measure, as have groups that have been Newsom’s allies on climate change. But the California Teachers Association joins him in opposition, improbably aligned with the state’s Republican Party and anti-tax groups.
This time around, therefore, raising taxes on the wealthy cannot be said to be an easy sell.