Election 2016

Proposition 55 — Impressive Distortions, Unimpressive Policy

October 27, 2016 By Gary M. Galles Leave a Comment

If there was a convincing case for a law, making it would not require distortions. Consequently, when arguments involve multiple misrepresentations, the likelihood of good policy, rather than a means to pick pockets, is minuscule.

Proposition 55 demonstrates this. It would extend explicitly temporary income tax hikes Proposition 30 imposed on California’s highest income earners in 2012 (to the highest rates in America), for a budgetary emergency, from 2018 to 2030.

The voter guide’s pro-55 argument offers little but distortions. It claims it “prevents billions in budget cuts,” using terms like “devastating,” by making “the wealthiest Californians continue to pay their fair share.” It asserts multiple times that it will not raise anyone’s taxes, assures voters that no one else will be affected by those taxes, and that “Under Proposition 55, all Californians’ sales taxes are reduced.”

However, no education cuts are currently planned. Proposition 30’s money pipeline continues until the 2019-2020 fiscal year. Education spending has jumped almost $25 billion (over 50 percent) since 2012, while the state budget went from a huge deficit to a sizeable surplus and a rainy day fund. No budget emergency justifies extending Proposition 30’s highly disproportionate impositions from 4 years to 16 years.

Claiming Proposition 55 would ensure that the wealthiest Californians would continue to pay their fair share is similarly distorted. Even granting that “fair share” rhetoric has real meaning, rather than offering a never-ending source of complaints so undefined opponents cannot refute them, it falls flat. If the heavily disproportionate income tax burdens before Proposition 30 were considered “fair,” the much higher burdens it temporarily imposed cannot be bootstrapped into a new, even more disproportionate standard of fairness.

Pro-55 rhetoric of providing for our children also differs from its actual effect. Much of the money will backfill underfunded pensions, increasing those teachers’ retirement security, but doing nothing for our children. With about four-fifths of education expenses teacher compensation, other funding increases will largely go to existing teachers, regardless of whether added benefits are provided to children. And cynicism is justified by teachers unions’ bare-knuckle opposition to every accountability reform that would benefit students.

The pro-55 argument asserts it does not raise anyone’s taxes. However, while it would not raise higher income earners’ tax rates from the temporarily boosted levels of Proposition 30, it boosts them from what they would have been in the absence of Proposition 55. Further, extending those tax rates a dozen years could add over $100 billion in burdens. Imposing such huge added burdens can only be dishonestly characterized as not raising anyone’s taxes.

Those not directly facing higher tax rates will also pay a price, contrary to pro-55 claims. Every restriction in supply (e.g., from producers leaving California, as documented after Proposition 30) it causes will harm everyone else through the “tax” of higher prices. This is especially problematic with many small businesses paying personal income tax rates on their business income, guaranteeing that many non-wealthy Californians will leave or face much higher taxes for years.

While Proposition 55 backers portray a huge income tax boost as nonexistent, they do the converse for sales taxes. They say, “Under Proposition 55 all Californians’ sales tax are reduced,’ and further claim it as economic stimulus. But in fact, under Proposition 30, the sales tax rate will fall back to its earlier level anyway. Whether Proposition 55 passes or fails changes nothing, but backers pretend it does.

Pro-55 interests misrepresent the education budget situation, supposedly “fair” tax shares and who gains. They assert a huge increase in tax burdens does not raise anyone’s taxes, while crediting a tax reduction that will happen anyway to Proposition 55. Cramming all that disinformation, and more, into the heavily-funded pro-55 campaign, while keeping straight faces, is an impressive feat. But going to such overwhelming lengths to deceive voters is not an impressive reason to vote for it.

Gary M. Galles is a professor of economics at Pepperdine University, a research fellow at the Independent Institute, adjunct scholar at the Ludwig von Mises Institute, and member of the FEE faculty network. His books include Apostle of Peace (2013), Faulty Premises, Faulty Policies (2014) and Lines of Liberty (2016).

Filed Under: Top Stories Tagged With: Education funding, Election 2016, Proposition 30, Proposition 55, Yes on 55

These Are 4 Ballot Measures That Actually Deserve a “Yes” Vote

October 9, 2016 By Jon Fleischman 4 Comments

Most of the oxygen in the room for this November’s election is being sucked up by the prolific and particularly vitriolic presidential showdown between Hillary Clinton and Donald Trump. You may be focused on that race because of your desire to make everything great again, or just a morbid fascination with reality TV-meets-American politics.

That said, if you’re from California and you look down-ticket, you’ll quickly encounter “Ballot-Measure-Palooza” – 17 different measures waiting for you to do some ballot box governing.

My default on ballot measures is to vote “no,” unless there is a compelling reason to vote “yes.” There are, in my opinion, four measures that are no-brainer “yes” votes – and so I wanted to run through them, and why I am voting for them.

Prop. 53 – The No Blank Checks Initiative. This measure would require that when state policymakers want to issue revenue bonds for a project that exceeds $2 billion, they must first have that approved by a vote of the people. This is a brilliant idea because, frankly, there is no adult supervision in the State Capitol. Special interests own the place, and since they make big bucks from state spending, it stands to reason they love to see any new revenues. This measure ensures a reasonable case for this epic amount of borrowing must be made to We, the People. I wrote about this measure in detail here.

Prop. 54 – The California Legislature Transparency Act. The primary component of this measure sounds simple, but actually represents substantial reform. It would require that any proposed legislation in the State Capitol be made available to the public in its final form for 72 hours before it can be voted upon in each chamber. Yes, this continues the theme of applying adult supervision. I cannot tell you the number of terrible, horrible pieces of legislation that are jammed through at the end of session. Tax increases, new regulations, new programs – most that would raise a hue and cry of concern, except by the time the public finds out – it’s too late. Read more about it here.

Prop. 65 – Jam The Greedy Grocers. A couple of years ago, after trying about a hundred times, the enviro-extremists in the legislature passed a law banning single-use plastic grocery bags, and imposing a ten cent tax on each paper bag. The tax was set up in a way that the grocery stores pocket the ten cents. Before you scratch your head, let me explain further. For years the California Grocers Association was part of the coalition stopping the bag ban. But on this last go-around, they switched sides, as estimates pegged the grocers’ revenues from the bag taxes at hundreds of millions of dollars. Enough voters signed petitions to halt the bag ban, and it has been placed on the ballot as Prop. 67 – on which I am voting “hell no.” But in case it passes, I’m voting “hell yes” on 65, which would take the revenue from the greedy grocers and instead repurpose it to state environmental programs – and leave the sell-out grocers holding the bag, so to speak. I wrote about this here.

Prop. 66 – Fix The Death Penalty, Don’t End It. This would address legal and administrative hurdles that have resulted in only 13 death-row inmates being executed since 1978, in order to make the death penalty work. There is another measure on the ballot, Prop. 62, that would prohibit the use of the death penalty in California. If your value system is such that you think that no matter how despicable or evil someone is, and no matter how heinous an act of violence they commit, that being put to death by the state for your crimes is a bad idea – you’d want to vote “yes” on 62, and “no” on 66. On the other hand, if you think that the death penalty serves as both an important deterrent to some who would commit the most horrible of crimes – often cold blooded, pre-meditated murder – and also provides for justice for surviving victims, then “yes” on 66 is an important vote to cast. Read more here.

As you peruse the other thirteen ballot measures maybe you will find one or two you think are a good idea. Maybe you want more state bonds issued for school construction. Or maybe you want to be able, finally, to make those pot brownies that you’ve been craving since your days at UC Berkeley. I will let you sort through those decisions. But I think you will find that higher taxes and more regulations are right there on the ballot, awaiting your blessing and vote. As if California doesn’t have high enough taxes, or more than enough regulations.

Originally published in Breibart News/California

Filed Under: Top Stories Tagged With: California Legislative Transparency Act, Death Penalty, Election 2016, No Blank Checks Initiative

Nov. Election Sees More than $34 Billion in Local Borrowing and Local Tax Increases

September 28, 2016 By Ed Ring 2 Comments

New local taxes and new local borrowing are a regular phenomenon in California elections, but this year our government union-controlled politicians have outdone themselves. Let’s compare:

November 2014 – $11 billion in new borrowing proposed via 118 local bond measures, 81 percent passed. Of the 117 local proposals for new taxes, 68 percent passed.

June 2016 – $6.2 billion in new borrowing proposed via 48 local bond measures, an estimated 93 percent passed. Of the 42 local proposals for new taxes, an estimated 66 percent passed.

November 2016 – $32.2 billion in new borrowing via 193 local bond measures, and 224 local proposals for new taxes!

Not only do these general and primary and special election tax and bond measures accumulate year after year, but they nearly always pass! The primary source for this information is the California Tax Foundation, who have just produced another excellent guide “Local Tax and Bond Measures 2016.” This time, they have not only compiled a list of all of the proposed local taxes and bonds, but for each of the proposed new local taxes, they have compiled the projected annual collections. The result is stunning.

2016 California Local Tax and Bond Measures

As this table reports, $32.2 billion in new borrowing is being proposed, nearly all of it for schools and colleges. At 5.0 percent annual interest with a 30 year repayment plan, this borrowing will cost property owners another $2.0 billion per year in increased property taxes. If over 90 percent of these bonds are approved by voters, as recent history indicates is likely, California’s taxpayers will suddenly have saddled themselves with nearly $30 billion in new government debt.

Also as reported on the above table, the 224 proposed tax increases are estimated to cost taxpayers at least $2.9 billion per year. “At least,” because CalTax was unable to find revenue projections for 29 of them. And while “sin taxes” on marijuana and soda promise to bring in $58 million and $18 million, respectively, it is sales tax, that everyone pays, that will bring in most of the revenue, over $2.3 billion.

Because local taxes are numerous and dispersed onto hundreds of differing ballots across the state, they don’t get the visibility that state tax increases generate. But collectively they are just as significant. California’s Prop. 30, passed by voters in 2012, generated about $6.0 billion per year. That same tax, which was supposed to be temporary, will be extended through 2030 if voters approve Prop. 55 this year. But if you compare this statewide tax to the proposed local taxes, $2.9 billion per year, along with required payments on the local bonds, $2.1 billion per year, you are adding another $5.0 billion annual burden to taxpayers.

Passing Prop. 30 was a major fight. Similarly, Prop. 55 has huge visibility with voters. But because nearly all of the local measures pass, and because dozens if not hundreds of them appear on the ballot every election, local taxes and bonds matter more. Invisible, ongoing and ever expanding, they are silently elevating the cost-of-living for ordinary Californians as much or more than state taxes.

Where does this money really go? Why is there an insatiable thirst for more taxes and more borrowed funds?

One word: Pensions. One cause: Government unions and their allies in the financial community, who together comprise what is by far the most potent political lobby in California.

A May 2016 analysis by the California Policy Center, using the most recent data available from the U.S. Census Bureau, estimated that during 2014, California’s 80+ independent state/local government employee pension systems received $30.1 billion in contributions (ref. table 2-A). Later in that same report, on table 2-C which is displayed below, one can see how much these pension systems actually need to remain financially healthy. At a minimum, they are collecting $8.0 billion per year LESS than they need. And that is if the investments they’ve made yield an annual return of 7.5 percent per year for the next 30 years. At the modest reduction of that projection to 6.5 percent – which even CalPERS has announced they are going to phase in as their new projection for calculating required annual contributions, these pension systems are collecting $22.2 billion per year LESS than they need.

California State/Local Pension Funds Consolidated
2014 – Est. Funding Status and Required Contributions at Various ROI

If California’s state and local government workers participated in Social Security like the rest of California’s workers, instead of receiving guaranteed defined benefit pensions that on average pay FOUR TIMES what Social Security recipients can expect, there would be no insatiable need for more money for the pension systems. Even if California’s state and local government workers merely received defined benefits that paid, on average, TWICE what Social Security recipients can expect, these pension funds would currently have surpluses. Moreover, there would be money left over in local municipal and school district operating budgets to maintain facilities, instead of having to perpetually borrow.

Six billion dollars per year ala Prop. 30 and Prop. 55. Another $5 billion per year thanks to new proposed local taxes and borrowing just this November. And it’s not even close to enough. California’s state and local government pension systems are going to need somewhere between $50 to $60 billion per year to stay afloat, and currently they’re collecting barely more than half that much.

No wonder there’s the perennial scramble for more. More. MORE.

* * *

Ed Ring is the president of the California Policy Center.

Filed Under: Top Stories Tagged With: Bond measures, California Policy Center, California Tax Foundation, Ed Ring, Election 2016, November Election

High-Visibility Tobacco Tax Initiative Receiving Lots of Attention, Money

September 7, 2016 By Steven Greenhut 1 Comment

SACRAMENTO – There’s broad agreement that the 17 initiatives on the statewide ballot on November 8 cover some of the most significant public-policy issues to come before voters in more than a decade. For instance, voters will have a chance to legalize marijuana, outlaw the death penalty, put an end to the state’s virtual ban on bilingual education, approve a broad gun-control package and reduce prison sentences for some non-violent felons.

But two months before the election, one of the highest-visibility measures also is fairly narrow in scope. Proposition 56 would raise California’s relatively low tobacco tax (relative to other states) by $2 a cigarette pack – and increase taxes by an equivalent amount on all other tobacco products (cigars, chewing tobacco, etc.). It also would significantly increase taxes on electronic cigarettes and vaping products. It has high visibility right now because of a series of advertisements opponents are running on radio stations across the state.

Supporters pitch the measure as a means primarily to boost public health. “An increase in the tobacco tax is an appropriate way to decrease tobacco use and mitigate the costs of health care treatment and improve existing programs providing for quality health care and access to health care services for families and children. It will save lives and save state and local government money in the future,” according to the initiative’s findings.

Gov. Jerry Brown recently signed into law a package of anti-tobacco bills that, among other things, raise the smoking age to 21. Studies of addiction show that teens who begin smoking are more likely to continue this dangerous habit throughout their lives. Backers of this initiative argue that raising the prices of cigarettes is another main way to dissuade people from smoking. And they point to the costs to the health system imposed by smokers.

But the measure’s opponents are focused increasingly on the spending aspects of the proposal. According to the official ballot argument against the measure, “Prop. 56 allocates just 13 percent of new tobacco tax money to treat smokers or stop kids from starting. If we are going to tax smokers another $1.4 billion per year, more should be dedicated to treating them and keeping kids from starting. Instead, most of the $1.4 billion in new taxes goes to health insurance companies and other wealthy special interests, instead of where it is needed.”

An analysis by the non-partisan Legislative Analyst’s Office confirms that only a small percentage of the estimated $1.4 billion in new revenues are earmarked to such programs. The main priority of the new funds, based on the LAO analysis, is to “replace revenues lost due to lower consumption resulting from the excise tax increase.” That reinforces the odd conundrum faced by California and other states. They use tax and regulatory policies to promote public health by reducing smoking, but then struggle to find funds to pay for ongoing programs as the number of smokers – and therefore the number of tobacco-taxpayers – keeps falling.

The initiative then earmarks some funds to law enforcement, to University of California physician training, to the state auditor and to administration. But 82 percent of the remaining funds go to “increasing the level of payment” for health care related to Medi-Cal, the state’s health-care program for low-income people. Prop. 56 opponents therefore argue it’s designed mainly to benefit health-insurance companies and other interest groups – and includes few limits on how they spend the money they receive.

Furthermore, the initiative bypasses educational-funding requirements under Proposition 98, the 1988 initiative that now requires approximately 43 percent of state general-fund revenues to be directed to the public-school system. As the LAOexplained, “Proposition 56 amends the state Constitution to exempt the measure’s revenues and spending from the state’s constitutional spending limit. (This constitutional exemption is similar to ones already in place for prior, voter-approved increases in tobacco taxes.) This measure also exempts revenues from minimum funding requirements for education required under Proposition 98.”

It’s not unusual for a major tax hike measure to ignite controversies over how the new revenues will be spent. But there’s a serious question about whether this initiative will meet its health-improvement goals given the way the tax hammers a common product used by people to quit smoking.

In a research paper co-authored with my R Street Institute colleague Cameron Smith, we note the measure boosts excise taxes on vaping by 320 percent. The key, stated goal of the tobacco tax increase is to dissuade people from buying cigarettes. By the same logic then, the massive boost in taxes on e-cigarettes seems designed to dissuade people from using them.

Yet as Public Health England explained: “The comprehensive review of the evidence finds that almost all of the 2.6 million adults using e-cigarettes in Great Britain are current or ex-smokers, most of whom are using the devices to help them quit smoking or to prevent them going back to cigarettes.” That government health agency urges public-health officials to promote vaping as a way to improve public health. Some U.S. studies come to similar conclusions.

Proposition 56 backers argue that vaping hasn’t been proven safe and the devices haven’t been around long enough to know long-term health effects. They also fear teens will begin vaping and then move on to combustible cigarettes, which everyone agrees are dangerous. And they point to a recent University of Southern California study suggesting teens who vape are six times more likely to begin smoking cigarettes than teens who don’t vape.

In reality, the study seems mainly to reflect “the difference between teens inclined to experiment and teens not so inclined,” according to a public-health expert we quoted. Furthermore, the e-cigarette industry doesn’t claim vaping is safe – they say it is a safer alternative to cigarette smoking. Research suggests they are about 95 percent safer.

California has the second-lowest smoking rate in the nation at around 12 percent. Only Utah has a lower percentage of smokers. So Proposition 56 doesn’t effect a broad swath of the public – but it is a contentious measure given questions about where the tax dollars will go and about its heavy-handed treatment toward vaping. Compared to many of the other initiatives on the ballot, this one might seem simple, but it’s about far more than whether the state government should boost taxes on a pack of cigarettes by two dollars.

Steven Greenhut is Western region director for the R Street Institute. He is based in Sacramento. Write to him at sgreenhut@rstreet.org.

This piece was originally published by CalWatchdog.com

Filed Under: Top Stories Tagged With: CalWatchdog, Cigarette tax, Election 2016, Jerry Brown, LAO, Prop. 56, Steven Greenhut, taxes, Vaping

Beware of Props. 51, 55, and 56 Wreaking Havoc on CA Budget

August 8, 2016 By David Kersten 4 Comments

As a professor of public budgeting and someone who has worked their entire career analyzing public budgets, I can say that ballot box budgeting wreaks havoc on the California budget process and taxpayer interests.

Yet it is something that voters are so accustomed to doing that most average voters don’t even know what “ballot box budgeting” is.

In short, ballot box budgeting is the practice of making major budget decisions at the ballot box. And unlike the normal budget process, these decisions are commonly written into the California Constitution, and not subject to change in any way short of another ballot measure.

The result is that funds are locked in to being spent for a particular purpose regardless of other budget needs and priorities, and commonly lack the same accountability and oversight that the rest of the California budget is subject to through the legislative process.

There are three measures on the November 2016 ballot that represent ballot box budgeting at its worst, and should be rejected — Proposition 51 School Bonds, Proposition 55 School Funding and Proposition 56 Tobacco Tax Increase. There is one other measure, Proposition 64 Marijuana Legalization and Tax, which represents ballot box budgeting, but is less egregious and is worthy of consideration on its policy merits given that marijuana is not currently legal and therefore not taxed at all but should be considered on policy grounds.

The reality is that nearly all initiatives have some type of budget impact, but initiatives that allocate a significant dollar amount of public funds should generally be looked at with great skepticism, particularly those that raise taxes or reallocate existing public funds in some way.

Another common element in ballot box budgeting is a “pay to play” element, characterized by a situation where special interests sponsor a ballot measure that allocates public funds that benefit their private financial interest. All four initiatives mentioned above have a significant “pay to play” element, that should be considered as well, and viewed with great skepticism.

In generally all such cases, initiatives are sold as being crafted in the “common good” or for the “public interest” but the real motivation is to benefit the private interests that raised the money to quality the measure and run a support campaign.

For example, Prop. 51 authorizes $9 billion in general obligation bonds for construction of K-12 public schools. The construction of school facilities is done through a process at the local level, with state bond funds providing a state match, but this local process has come under great fire in the media recently, largely due to California Treasurer John Chiang’s efforts.

Treasurer Chiang has stopped short of criticizing Prop. 51 specifically but he has came down hard on the local municipal bond process as being a “pay to play” process that “rips-off taxpayers,” according to Treasurer Chiang’s press release.

Chiang says this “pay to play” process rewards special interests including developers, bondholders, and construction companies who offer to fund local bond campaigns in exchange for lucrative contracts, which are “no bid” contracts in many cases.

“Not only are these “pay-to-play” arrangements unlawful, they rip off taxpayers and endanger the integrity of school bonds,” Treasurer John Chiang declared, noting that between 2012-15 K-12 school districts issued $43.8 billion in long-term debt.

Without cleaning up this “corrupt” process, Prop. 51 essentially puts $9 billion in public funds at risk for misallocation by school districts and public agencies. And will subject taxpayers to huge future costs, for spending with questionable public benefits given the process through which these bonds are issued under the current system.

Of course, the same special interests who benefit from this “pay to play” process are the primary proponents of Prop. 51, and are putting up millions of dollars to lock in these lucrative contracts for public bond spending. A number of local districts are also proposing local bonds on the November 2016 ballot to provide a local match for these highly questionable public projects.

Prop. 55 is the example of another measure which might appear legitimate on its face because it raises money for “schools” and “health programs.” But should also be rejected on ground of being a terrible case of “ballot box budgeting” and “pay to play” corruption of the state’s initiative process.

Prop. 55 extends the Prop. 30 (2012) income tax increases taxes on individuals and small businesses, which expire at the end of 2017, for another 12 years until 2030. The effort is being sold as being a legitimate effort to fund schools and health care because Prop. 30 is something that the Governor, Legislature and business community agreed on back in 2012.

But Prop. 55 is not the same as the deal cut back in 2012, and should be rejected. First, Prop. 55 is much more expensive, nearly twice as expensive as Prop. 30—and represents an $8-11 billion tax increase, as opposed to a $6.5 billion annual hit from Prop. 30. Secondly, the measure is not “temporary,” and results in a broken promise Governor and Legislature made to voters in 2012—that’s why Governor Brown says he will not endorse Prop. 55.

Lastly, Prop. 55 adds a significant “pay to play” element as well by giving private hospital interests a piece of the action. Specifically, Prop. 55 locks in another $2 billion in funding for “health programs,” which did not even exist in Prop. 30, and is a pure handout to the hospital interests which have already contributed more than $21 million to the Yes on Prop. 55 Campaign.

Public employee union interests get the bulk of the funds, estimated at $75 billion over 12 years, in salary and benefit spending primarily but the public generally does not view them as being the same type of “special interest” as purely private interests. Yet, these public employee union interests have put up another $18 million thus far to support Prop. 55, and stand to reap huge rewards for their members and dues increases if Prop. 55 passes.

From a ballot box budgeting perspective, both Prop. 55 and the Prop. 56 $2 per pack tobacco tax increase are terrible budget policy because they lock in significant expenditure of public funds that will be allocated outside of the state’s annual budget process without regard to actual need or other pressing spending priorities.

Prop. 55 locks in $8-11 billion in spending with the bulk going for education, but another $2 billion going to “health care” programs—again not allocated according to need or the accountability standards under the state’s annual budget process which subjects all public spending to annual review. Prop. 56 locks in another $1-1.4 billion in health care spending that will be allocated outside the state’s budget process.

Voters are encouraged to reject Propositions 51, 55, and 56 on grounds that they are terrible examples of “ballot box budgeting,” in which special interests put up millions of dollars, even tens of millions of dollars, to try to pass “public interest” measures with the expectation of a big payday at taxpayer expense for the years to come.

David Kersten is executive director of the Kersten Institute for Governance and Public Policy (www.kersteninsitute.org). He is an expert on fiscal issues and teaches a masters’ course on public budgeting for the University of San Francisco.

This piece was originally published by Fox and Hounds Daily

Filed Under: Top Stories Tagged With: budget, education, Election 2016, Schools bonds, Tobacco, Tobacco Tax