The problem with the tax initiative

Pub date December 6, 2011

EDITORIAL The Occupy movement — despite police abuse, official hostility and dismissive media — is changing the mainstream of discussion in American politics. For the first time in years, it’s actually possible to talk about raising taxes on the very wealthy. All the polls show strong, and growing, public sentiment in favor of economic equality. It’s a great opportunity to reform California’s tax system — but Gov. Jerry Brown seems unwilling to take advantage of what could be the most important moment in his political career.

At least five groups are preparing tax-reform measures for the November, 2012 ballot. One of them — the so-called Think Long proposal supported by billionaire Nicolas Berggruen and Google executive Eric Schmidt — is largely regressive. Much of the $10 billion it would raise would come from sales taxes on services, which amounts to a whopping new tax on the middle class. Another, known as the Clean Energy Jobs Act (also backed by a billionaire, hedge fund manager Tom Steyer) would force corporations to pay taxes based on sales in the state, which in and of itself isn’t a terrible idea. But that’s the beginning and end of the measure, and half of the $1 billion it would raise would be earmarked for (private sector) clean energy projects.

Then there are the income tax proposals. One, sponsored by a Los Angeles attorney named Molly Munger (whose father happens to be a billionaire investor) would raise almost everyone’s income taxes, although the wealthy would pay more; every penny of the $10 billion in new revenue would be earmarked for education. The Courage Campaign and the California Federation of Teachers want to raise taxes on incomes of more than $1 million, with the money also dedicated to education.

Then there’s the governor’s plan. Brown’s offering a mix of a half-cent sales-tax hike and higher income taxes to raise about $7.5 billion. Some major labor groups are already on board — as are some business groups, which would rather see a tax on consumers than higher taxes on big corporations and the wealthy. His plan may seem pragmatic — but it’s hardly progressive and won’t solve the state’s $13 billion budget shortfall for this year, much less restore funding to the services that have been cut in past budget battles.

All of the plans have problems. While we’re much more aligned with the Courage Campaign’s goal of taxing the rich, and we agree that education is a critical need, there are other critical needs in the state, too (affordable housing, health and social services, for example) and we’re not sure the education earmark makes sense. And most of them don’t go beyond personal income taxes, when taxes on big businesses are often scandalously low.

Brown ought to be taking the best of the various proposals, adding other ideas that have been put forward by Democrats in the Legislature, and producing a final product that would shift the state’s tax burden onto those who can most afford it. That means scrapping the sales tax and replacing it with steeper income tax increases on the highest earners and an oil-severance tax (which could alone bring in as much as $8 billion a year). Higher taxes on financial institutions ought to be part of the deal, too.

With the presidential election driving a high turnout in California, and public anger at the greed of the top one percent defining the electoral debate, it’s foolish to put forward a half-assed measure that doesn’t amount to real reform. Brown and his team need to make some major changes before a tax measure heads to the Nov. 2012 ballot.