California: Will Prop 30 Solve Our Fiscal Problems?
California Proposition 30: Will Higher Taxes Solve Our State's Fiscal Problems?
Proposition 30 is a package of tax increases expected to raise our state government’s revenue
by about $6 billion annually. If this measure passes, sales taxes would be increased by one-
quarter percent for 4 years and income taxes increased significantly for 7 years. A similar and
competing measure, Proposition 38, would raise income taxes by a greater amount for 10
years, resulting in increased state revenues of about $10 billion a year. According to each ballot
measure, the funds would largely go to K-12 public schools. But Prop 30 really is about the
larger issue of state spending.
Will these massive tax increases solve the State of California’s fiscal problems (then expire as
scheduled), or are they the financial equivalent of more drugs for the addicted? Has the
California state government proven itself to be good steward of our tax dollars and can they be 1 trusted with more? Are high earners, who already pay an outsized portion of state income taxes, a reliable source of even greater tax revenue? Can such a huge tax increase really be
temporary? Look at the trend: a graph is worth 1,000 words (or maybe $40 billion). The graph page 13 compares California's population growth (blue line) to the state
government's budget growth (red line) from 1982 to 2009. The graph’s budget data comes
from the document, “Overview of the 2012-13 Budget Bill,” appendix iii, published by the
Senate Committee on Budget and Fiscal Review in February 2012. Over those 27 years,
spending per California resident has grown from $1,019 to $3,225 in 2009. That rate of
spending increase is way above the rate of inflation. During the boom times of the 1990s and ealy 2000s the state raked in tax revenue. This was
financed in part by capital gains taxes paid by newly-minted dot-com IPO millionaires. 2
Foolishly, our state's politicians didn't see the dot-com boom as an anomaly, and they increased spending at a rate far above the normal trends of long-term economic growth and
the state's population increase. They were spending the windfall as fast as it was coming in, as
if the good times would continue indefinitely. If California's budget stayed in alignment with population growth and inflation, in 2009 the
state's budget would have been about $79 billion, compared to the $119 billion it actually was,
which is $40 billion lower! Funding for education is the reason, or the excuse? The State of California is facing a severe fiscal challenge. Simply, our state government's
spending is significantly higher than its revenues. This imbalance is not new; it is a condition
that has existed for years and it has been getting worse. Governor Brown sees a huge revenue
increase (meaning, a huge tax increase) as a major way to resolve the imbalance. 3
In the design and marketing of Proposition 30 our schools are being “held hostage” to get
Californians to approve the measure. If it fails, the governor says, education funding will be cut. The State of California spends money on many things, education being just one. The
justification for raising taxes could have been any category of state government spending, or all
