Brown's tax initiative is about to get a lot less appealing

The governor is desperate to raise revenues through a temporary tax increase - so desperate that he appears ready to align himself with proponents of a deeply flawed alternative. Details are still being worked out, but it's likely to include a smaller sales tax increase than what the governor was initially proposing and a bigger tax hike for the rich. By all rights, voters wouldn't even be considering higher taxes - the legislature should have signed off on a revenue-raising plan last year. But the governor couldn't win passage without the support of a few Republicans in each chamber, and no one came forward. So Brown went for a ballot measure, proposing to raise the state sales tax by half a cent for four years and the state income tax levied on annual earnings over $250,000 for five years. Most of the proceeds would go to the schools, which have been whacked by budget cuts. Mind you, this isn't the way to restore fiscal sanity in Sacramento. The real way is to overhaul the tax code, restructure government, institute pension reform, etc. But none of that is going to happen, not soon anyway. And the money has to be raised somehow. There's a problem, however, with going the initiative route: Anybody with enough money can challenge an initiative with one of their own. And that's what happened with the tax plan. If they all wind up on the November ballot it's a good bet that voters will turn everything down (when in doubt, just vote no). So the governor is now trying to accommodate one of his challengers, the California Federation of Teachers, which is pushing a plan that would require the rich to pay a lot more. It's a terrible approach, the sort of soak-the-rich reflexiveness that's nearly as destructive as the right's aversion to taxes. From the LAT:

The move is a striking one for a governor who has tried to stake out a centrist course in California's budget battles. For months he has rejected overtures from the CFT to change his proposal and make it more populist. He carefully crafted his tax measure last fall, amid top secrecy, to win support from both business and organized labor. It was unclear, sources said, whether business groups will continue to back the governor now that he is seeking more money from the wealthy and less from the general population. Brown's new proposal will raise rates on those earning more than $250,000 by one percentage point, the same as in his initial plan, the sources said. But now rates would climb steeper on richer filers -- by two points on those making more than $300,000 and by three points on those earning more than $500,000. And those income taxes would run for seven years, rather than expire after five, as Brown had initially proposed. The sales tax increase would last four years.

Of course, it's entirely possible that even the modified initiative won't get voter support in November. Frankly, that seems like a decent bet, especially if the recovery takes hold and voters start to decouple California's severe fiscal problems from the rest of the economy.

*Here's the governor's press release.

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
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