City Journal Summer 2014

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Summer 2014
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California

Troy Senik
Reform Denied
On election night, Californians stand by high taxes and untrammeled union power.
7 November 2012

Historians who one day will try to make sense of the 2012 election results deserve our pity. The cognitive dissonance of this year’s electorate will make any meaningful exegesis overwhelmingly difficult. A majority of voters in the days, weeks, and months leading up to Tuesday’s vote said overwhelmingly that the nation is on the “wrong track.” Yet a slim majority of Americans voted to reaffirm the status quo. Barack Obama was reelected to the White House, Democrats retained control of the Senate, and Republicans hung on to their substantial majority in the House of Representatives.

California, of course, always has to go bigger and better. Public disquiet in the Golden State was even more pronounced than in the nation at large, with an October poll by Pepperdine University and the California Business Roundtable revealing that two-thirds of residents believe the state is on the wrong track. That pessimism was well-rooted in reality. Included among the state’s dubious achievements are the nation’s worst business atmosphere, its third-highest unemployment rate, recurring budget deficits, unfunded pension obligations approaching a half-trillion dollars, and a population that’s increasingly moving on to greener pastures. And yet, on Tuesday, Californians, like the nation at large, voted for more of the same.

Though California has one of the most burdensome tax codes in the nation, three of the 11 initiatives that appeared on Tuesday’s ballot asked voters to approve tax increases. In sharp contrast with the state’s historical pattern of defeating such proposals at the ballot box, two of the three initiatives passed. It bears noting, as well, that even the defeat of one measure (Proposition 38, an across-the-board income-tax hike exempting only the very poor) didn’t represent much of a victory for fiscal sanity. Prop. 38 was competing with Governor Jerry Brown’s tax-hiking Proposition 30, which passed. Even if voters had approved both, only the one that commanded the largest majority would have been enacted.

With Brown’s Prop. 30 becoming law, California will now have the nation’s highest sales taxes and its highest top income-tax rates (thanks to a “millionaire’s tax” that inexplicably starts at $250,000 of annual income). The state will have diminished incentives to keep public-sector spending under control while increasing the headwinds facing an already battered economy.

Golden State voters also approved Proposition 39, a deceptively marketed initiative that would increase taxes on businesses headquartered out of state. With no effective opposition campaign, Prop. 39 won by a commanding margin—more than 60 percent of voters approved. Prop. 39 even narrowly prevailed in the conservative bastion of Orange County. The $1-billion-a-year bounty that the measure promises may help Governor Brown come budget time, but it only adds to the burdens of conducting commerce in the nation’s largest economy—recently ranked 48th in the nation for its business-tax climate by the Tax Foundation. Prop. 39 will also help the green-energy zealots who financed it. They stand to take half of the revenue haul from the initiative for the first five years of its implementation to underwrite a “Clean Energy Jobs Creation Fund.”

For all of their ill effects, however, high taxes and an unfriendly economic environment are only the symptoms of California’s underlying disease: a political system dominated by public-sector unions. The fight over Proposition 32—which sought to unravel that power by preventing unions from using member dues for political spending without workers’ consent—was perhaps the most heated battle of this election cycle. Unlike past efforts to get the state’s voters to approve paycheck protection (1998’s Proposition 226 and 2005’s Proposition 75, both of which were defeated), Prop. 32 attempted to cultivate wider support through equal-opportunity ox-goring. It extended the paycheck-protection provisions to corporations as well as unions—a somewhat superficial gesture, as few corporations rely on paycheck deductions for political spending. It proposed outlawing union and corporate contributions to state and local candidates. And it would have kept government contractors from donating to politicians who could award them contracts. In the end, none of that mattered.

Prop. 32 failed, receiving less than 44 percent of the vote. While it’s an oversimplification to look at the performance of ballot measures purely as a function of campaign spending, the initiative’s defeat underlines its proponents’ concerns. An avalanche of union money financed the opposition campaign to Prop. 32, outpacing the pro-reform effort by $14.6 million. The state’s most powerful special interest—the California Teachers Association—single-handedly chipped in about $22 million. Bringing that kind of money to bear is markedly easier when you have, as in the case of the CTA, 325,000 members coerced into underwriting your campaign expenditures. As long as that practice endures, expect big labor to continue its impressive run of victories in Golden State politics.

In October, a supermajority of California voters said the state was in serious trouble. In November, they voted to embrace an unsustainable status quo—high taxes, unlimited union power, and economic sclerosis. They have only themselves to blame for what’s to come.

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