LOS ANGELES (AP) — California is a state that both mints millionaires and relies heavily on taxing them to fund its education and provide basic state government services.
Both of those Californias feature in Proposition 55, which asks voters to extend higher income tax rates they passed four years ago on the wealthiest residents for another 12 years. Most of the money would fund public schools, though the Medi-Cal insurance program for the poor also would benefit, as would the state’s financial emergency fund.
The proposition’s supporters, unions that are far better funded and organized than the opposition, say letting the increased rates of up to 3 percent lapse is the equivalent of cutting school funding by several billion dollars each year.
Opponents argue that the state cannot continue soaking its richest residents — lest they move away — and that the real proposition should be a politically unpalatable revamp of a tax code in tatters.
If the arguments sound familiar, they should.
In 2012, as the state reeled from the lingering effects of the Great Recession, voters increased income taxes on residents who each year earn more than $263,000 for single filers and $526,000 for families. Backers led by Gov. Jerry Brown pushed Proposition 30 as a temporary, necessary way to reinvest in schools whose budgets had been hammered.
The cash infusion has boosted schools, raising more than $31 billion since 2012.
If approved in November, Proposition 55 would extend the higher income tax rates through 2030, though in a nod to the state’s stabilized finances it would not re-up sales tax increases that Proposition 30 included. The nonpartisan state Legislative Analyst’s Office concluded that continuing the income taxes would fetch between $4 billion and $9 billion annually.
A coalition backed by teachers’ unions and hospitals is spending big to ensure that Californians don’t “go back” to the lower tax rates.
“Without maintaining these taxes, we know we’re going to face cuts,” said Jennifer Wonnacott, a spokeswoman for the Yes on 55 campaign. “We are making progress in our schools, but there is still a lot of progress to go.”
Polling conducted in mid-September by the Public Policy Institute of California showed that 54 percent of likely voters said they would vote for Proposition 55.
As of late September, Yes on 55 reported raising $49 million, according to campaign finance reports . The California Hospitals Association contributed $25 million and the California Teachers Association $19 million.
Influential business associations and wealthy Republican donors who fought the tax in 2012 have kept their distance this year, at least financially.
The only opposition was organized in July by David Kersten, an independent researcher tapped by state and local officials for his fiscal expertise. Kersten, a former lobbyist, said he decided to rally after realizing no one else was stepping up.
“This money’s not being used well, based on what I know about the union side of the street,” Kersten said. He doesn’t want to give the education bureaucracy “blank checks” before teachers and administrators show they can spend money more efficiently.
Other criticisms of Proposition 55 include that it would prolong California’s over-reliance on capital gains taxes that the wealthy pay as they get wealthier — but do not pay when the stock market slumps. The top 1 percent of earners provide roughly half of the state’s income tax revenue in recent years, according to state statistics. Proposition 55 would affect the top 1.5 percent of taxpayers.
A 2015 analysis by Forbes concluded that, powered by Silicon Valley and Hollywood, California alone has more billionaires than any country but the United States and China.
One concern Proposition 55 opponents float is that wealthy Californians will get fed up and relocate, prompting a downward spiral in state finances.
“The argument that wealthy people leave the state due to tax rates is a political argument. It doesn’t have facts behind it,” said Chris Hoene, executive director the independent California Budget & Policy Center, a left-of-center think tank.
He cited a 2016 study led by a Stanford University professor which analyzed 45 million tax records to find out whether the “transitory millionaires” theory was real. That study concluded it was uncommon for the wealthy to move due to taxes, and that a 10 percent increase in the top rate leads to a 1 percent loss of the millionaire population.