California’s Democratic Tax Revolt

The left hand fights the other left hand over the spoils of higher taxes 

WSJ editorial.

"The internecine Democratic brawl over a California ballot measure to raise the top income-tax rate would be comic if the potential result wouldn’t be so tragic for the state. Here are progressives who support high taxes and electric-vehicle subsidies fighting other progressives who want to raise taxes to subsidize EVs.

California has been swimming in tax revenue thanks to strong capital gains and federal pandemic largesse. As is their habit, Democrats spent this year’s $100 billion budget surplus buying votes. Some 23 million California residents last month started receiving up to $1,050 checks from the state, though Californians now paying $6 a gallon for gas may not feel richer.

Whether or not it’s raining revenue, the forecast in California always calls for higher taxes. Ride-hailing company Lyft is bankrolling an initiative (Prop. 30) that would raise the top income-tax rate by 1.75 percentage points to 15.05% on Californians making more than $2 million a year. California’s 13.3% top rate on millionaires is already the second highest in the country after New York City’s (14.8%).

Eighty percent of the $3.5 billion to $5 billion that the tax increase is expected to raise annually would subsidize EVs and charging stations. The other 20% would fund wildfire mitigation. Democrats in Sacramento have already committed $10 billion for EVs over the next six years. Lower- and middle-income Californians can now get $4,500 rebates to buy EVs on top of a $7,500 federal tax credit.

But Lyft doesn’t believe these subsidies will be enough to meet a California mandate that EVs account for 90% of ride-hailing vehicle miles by 2030. Ergo, it has spent some $45 million to convince California voters to soak the rich some more to subsidize EVs even more. Money for wildfires is a political sweetener intended to broaden public support.

While green groups support Prop. 30, Gov. Gavin Newsom and the California Teachers Association oppose it, ostensibly on the political principle that Democrats in Sacramento should decide how to spend tax revenue. Prop. 30’s proceeds would go into a special fund that politicians couldn’t raid. It would also end-run a state constitutional provision setting minimum funding levels for public schools.

Perhaps the Governor and teachers union also recognize that the tax hike would endanger their tax-and-spend machine. The top 0.5% of taxpayers pay 40% of state income tax. Studies have found that the state’s 2012 voter-approved income tax increase and the 2017 deduction limit on state-and-local taxes resulted in more high earners fleeing the state.

If Prop. 30 passes, California’s highest earners will pay 14% more of their income in federal and state tax than they did before the 2012 tax hike took effect. Meantime, GOP-run states have spent the last decade cutting income taxes. Arizona, a popular destination for California emigres, is moving to a flat 2.5% tax rate. These states will become even more attractive for businesses and investors.

Prop. 30 also exposes the folly of California businesses—we’ll be kind by not naming them—that helped finance Democrats’ 2012 tax campaign, hoping it would ease budget pressure and buy them good will in Sacramento. Wrong on both counts. The pressure from progressive special interests to raise taxes is relentless. Prop. 30 won’t end it."