Budget Debate Setting the Stage for Massive Tax Increase Push This Fall

At long last, Gov. Newsom and Democratic leaders have reached a budget agreement.  Now lawmakers will race to pass the final legislation as the clock ticks down toward the June 30th deadline for the Gov. to sign a balanced budget.

For many days, Newsom and the Legislature’s Democratic leadership disagreed over their budget approaches .  The budget passed June 15 by Legislative Democrats – an exercise to meet Prop. 25’s requirement to keep their paychecks – delayed trigger cuts until October 1 under the expectation that the state will receive a multi-billion dollar cash infusion (or bailout) from Washington.  Newsom, in contrast, wanted to make the cuts now and restore funding later if the money comes in.

According to details from early press reports, there will be fewer cuts and more deferrals and gimmicks as Legislative Democrats pushed, though the Los Angeles Times reports, “spending cuts linked to future federal funds will be made immediately, as Newsom had wanted.”

In my view, all of this month’s budget maneuvers were political theater laying the groundwork for a massive tax increase push later this year.  Last week, we saw the first signs of how the campaign will materialize.

A coalition of public employee unions, environmentalists, proponents of single-payer health care and social justice organizations announced a campaign calling on lawmakers to “Commit to Equity.”

Channeling their inner Bernie Sanders, the group issued a press release urging lawmakers to reject a “cuts-only budget” and demanded the state “put up a plan to tax the privileged to preserve and improve schools, health care, and vital community services.”  They also called for an “end to the systemic inequality of our tax codes, which gives billionaires and corporations a pass from paying their fair share.”

The press release notes the “Commit to Equity” campaign builds upon a coalition letter from these organizations and others sent to Assembly Speaker Anthony Rendon and Senate President pro Tem Toni Atkins in May.  That letter calls on lawmakers to support the campaign to gut the historic taxpayer protections in Proposition 13 through the creation of a split roll property tax scheme, which would be an annual tax increase of between $7.5 and $12 billion according to the nonpartisan Legislative Analyst’s office.

That letter also called for lawmakers to “begin to rebalance the economy through a combination of new corporate/windfall taxes and stepped up contributions from those who have benefitted the most from California’s economy.”

Here’s how things could play out in the coming months:

Regardless of a final agreement over trigger cuts and other budget savings, no additional money from Washington materializes for California.

Advocates of the programs whose budgets will be cut when the triggers are pulled will campaign statewide for the split roll ballot measure.  Their message – vote for billions in new taxes on “those who have benefitted the most” or else public school budgets will be decimated, seniors thrown out in the street, and the poor left to starve.  If the favorable political climate these advocates are counting on materializes on November 3, enough voters buy into the campaign and pass split roll.

We’ve seen this strategy used successfully before in 2012, when advocates campaign on trigger cuts to education proposed by former Gov. Jerry Brown to push voters into enacting the Prop. 30 tax increases.

“Commit to Equity” advocates fail to mention that it’s hard-working Californians who will be hurt the most from a split roll property tax system and other tax hikes targeting the “privileged.”

The nonpartisan Tax Foundation rates California as having the nation’s third-worst business tax climate.  Raising taxes even higher on them means less available to invest in the business and create jobs.  Split roll could significantly hurt small businesses – especially women and minority-owned businesses struggling to expand their operations, hire and retain workers, and just stay afloat in these tough economic times.

The California Chamber of Commerce notes that split roll would also increase the cost of living for us all as higher taxes will be passed along to commercial tenants through higher rents, which will be passed along to consumers through higher prices for goods and services.  California was ranked second to last in the most recent U.S. News “Best States” affordability rankings.

Of course, that’s the ultimate irony of the “Commit to Equity” campaign.  Massive tax and spending increases enacted in the name of reducing inequality would actually hurt poor, minority, and rural communities the hardest, imposing the ultimate trigger cut of fewer job opportunities, more small businesses going out of work, and higher unemployment and poverty rates.

Tim Anaya is the Pacific Research Institute’s senior director of communications and the Sacramento office.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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