Tag Archive for: taxes

Voters Approve Over $3.0 Billion Per Year in New Local Taxes

When state ballot initiatives propose new taxes, it’s big news. This past November, voters rejected Proposition 30, which would have added another 1.75 percent tax on personal income above $2.0 million. The arguments for and against Prop. 30 were litigated in saturation level television campaigns waged by both sides; total expenditures were nearly $70 million.

But while every election features a handful of state tax and bond proposals that get statewide attention, additional hundreds of local state and bond proposals fly under the radar. Fortunately, after each election cycle and once all the votes are certified – something that in California doesn’t occur until 30 days after election day – the California Taxpayers Association puts out a report that shows the outcome of every local tax and bond proposal.

The impact of these hundreds of bids to raise taxes and increase borrowing, as documented by CalTax, in sum can exceed the amounts of the statewide initiatives.

We saw this demonstrated yet again this past November, when 131 bond proposals were placed on local ballots up and down the state, along with 234 local tax proposals. Of the proposed local bonds, 86 percent of them were approved by voters, dumping another $23.2 billion in debt onto Californians. In terms of budget impact, based on a 5 percent interest rate and a 30 year term, this new borrowing is going to cost taxpayers another $1.5 billion per year in principal and interest payments.

The fate of local tax proposals tells a similar story. 65 percent of them were approved by voters, adding another $1.6 billion annual burden onto California’s taxpayers.

These local increases in taxes and borrowing, which are almost exclusively regressive and will cost taxpayers at least another $3.1 billion per year, are comparable to the impact of Prop. 30, had it passed. Prop. 30, which would have affected California’s already overtaxed wealthy households, was estimated to bring in between $3.0 and $5.0 billion per year.

It’s interesting to see the categories of new local taxes. Note the projected big earner categories: “Documentary Transfer Tax,” “Gross Receipts Tax,” and “Transactions and Use Tax” (sales tax). The first two of these three are relatively recent innovations in a system that for decades relied primarily on sales tax. Expect more innovative tax schemes, such as “Vacancy Tax,” presumably designed to discourage people from owning real estate unless they plan for it to be occupied.

The propensity for voters to approve local taxes is well documented, as the next chart proves. The only category that has not performed extraordinarily well over the past ten years are General Obligation Bonds, which, still while more likely than not to pass, rarely deliver supermajority rate of approval. This is because School Bonds only require a 55 percent majority in order to pass, whereas General Obligation Bonds require a two-thirds majority.

When proponents only have to get 55 percent of voters to approve a bond, it does pretty well. Measured by the amount of proposed borrowing, school bonds consistently log over 90 percent approval by California’s local voters. The payments to service these bonds typically appear on the property tax bills of homeowners, and the amounts are not trivial. Most Californians can expect to pay considerably more than the legislated maximum of 1 percent of their home’s value, mostly thanks to local school bonds that are exempt from these limits.

As for local taxes, 2022 was a below average year for proponents, passing “only” 65 percent of them by number, and 59 percent by amount. While highly favoring proponents, this rate of approval is considerably lower than in previous elections, and may indicate voter fatigue with new taxes.

Compared to other elections in the past decade, 2022 was not bad. While California taxpayers added over $3.0 billion to their annual tax burden, voters did not approve a single statewide tax or bond proposal.

It’s a little early to look ahead to 2024, but three initiatives have already qualified for the November 2024 ballot. One of them aims to “increase personal income taxes to fund pandemic detection and prevention.” Expect additional statewide proposals to increase taxes, since California’s much vaunted budget surplus has evaporated. Voters may also count on hundreds of local tax and bond proposals, and if history is any guide, shall approve the vast majority of them.

This article originally appeared in the California Globe.

Inflation adjusted per capita state spending doubles in one decade – for what?

The California State Legislature has just released the “Floor Report of the 2022-2023 Budget,” and it’s a doozy. Representing an agreement between the budget committees of the Assembly and the Senate, and building on Governor Newsom’s proposal, this $300 billion monstrosity has moved one step closer to becoming final.

To fully appreciate how out of control California’s state government spending has become, compare the general fund spending growth over just the past ten years. The following chart, relying on official state budget reports going back to 2012-13, shows California’s General Fund spending by year. Back then, the general fund was $92.9 billion. Adjusting for inflation and expressing this amount in 2022 dollars, the 2012-13 general fund was $118.4 billion, barely half the swollen $235.5 billion that is projected for the upcoming budget year.

When you take into account the fact that California’s population has only increased by 3.1 percent in the past decade (it’s actually declined for the past two years), this budget profligacy becomes even more inexplicable. The inflation adjusted (i.e., in 2022 dollars) per capita general fund spending ten years ago was $3,124. It has now exploded to $6,023 per person. What has the average Californian gotten for all that extra money, apart from taxes that are higher than ever, and set to go even higher?

By almost every objective measure, Californians are worse off today than ten years ago. Back in June 2012, the average cost of a home in California was an already outrageous $307,000 ($391,000 in 2022 dollars). As of June 2022, the average cost of a home in California is just over $800,000.

Every basic necessity in California costs more: gasoline, electricity, and water. The only commodity where Californians still pay prices competitive with the rest of the U.S. is for fruit and vegetables, but regulators are fast closing in on that last advantage. Just ask a farmer that’s trying to get water allocations from a state bureaucracy committed to letting every precious drop of rain in these dry years run out to sea. And they’re doing this during a global food crisis.

What about crime? Homelessness? Is California better off today than it was ten years ago? Drive down any urban boulevard, or up any freeway onramp, and survey the expanse of tents and makeshift shacks. Did you see that ten years ago? The state’s answer? Turn tens of billions of dollars over to developers and “nonprofits” to build “permanent supportive housing” at an average cost of $500,000 per unit. These unfortunate souls could easily be rounded up and given inexpensive shelter, and required to maintain sobriety, and if that happened they’d either go back to Arkansas, or they’d finally have a chance to recover their dignity. Instead, while the homeless industrial complex scams taxpayers for additional billions, they frequent “safe injection sites” while living in squalor.

What’s happened in California, and it’s being exported to the rest of the United States, is an out-of-control public sector has imposed a regulatory burden on businesses that has driven prices up, destroying small businesses, and enabling big corporations to consolidate markets.

Excessive building codes and permitting fees are a perfect example. Builders in California are required to comply with so many mandated construction codes, and obtain so many permits, from so many agencies, that only the biggest and most politically connected development corporations can still make money. Smaller operators are driven out of the business, not only including the smaller construction companies, but mom and pop landlords. As these barriers fall into place, entire neighborhoods are bought up by investment funds. Thanks to the crippling burden of regulations, the last avenue towards building generational wealth in California, real estate, has been taken away from all but the wealthiest families.

This is the story of California in the early 21st century. A voracious state government has created shortages and high prices through overregulation, then as people are impoverished by its actions, it has used that to justify expensive new programs and expanded state bureaucracies. Failed policies, for California’s state government, constitutes success, as taxes are raised and even more regulations are enacted to cope with the problems it created.

No wonder the inflation adjusted per capita state General Fund spending has doubled in the past decade.

This article originally appeared on the website of the California Policy Center.

Will California Voters Approve More Taxes and Borrowing?

If your city council puts a tax increase on the ballot, or your local school district puts a construction bond on the ballot, chances are very good it will get approved. Data from the past four November general elections is unambiguous. In November of 2020, for example, 80 percent of school bonds were approved by voters. Measured by dollar amounts, 91 percent of the proposed borrowing was approved. Similarly, voters in November 2020 approved 85 percent of local tax proposals; measured by projected tax receipts, 98 percent of the proposed tax increases were approved.

The following chart, using data provided by the California Tax Foundation, shows how billions upon billions of new taxes and borrowing have piled up over the past decade. And this chart is far from complete. It only reports on November elections, whereas additional hundreds of local tax and borrowing proposals have been approved by voters in primary elections and numerous special elections. Moreover, while the local bond totals are accurate, the projected total local tax revenues are far from accurate, because in about half of all cases, the data (ref. 2016, 2018, and 2020) for a new tax proposal does not report any estimate of how much additional annual revenue is anticipated.

Nonetheless the numbers are impressive. Over the past four November elections, voters have approved $60.6 billion in local school bonds, another $9.4 billion in general obligation bonds, and at least $5.2 billion in annual tax increases.

This is the context in which to evaluate what is being served up on the local ballots on June 7 in California. There are 11 school bonds attempting to get approval for a total of $967 million in new borrowing. There are two general obligation bond proposals that total another $419 million in new borrowing, and 27 proposals for new local taxes which will add an estimated $118 million per year to the tax burden of Californians. There is even one local tax repeal that made it onto the ballot via a local citizens initiative. Measure Z in San Bernardino, if passed, would repeal a parcel tax that proponents of the repeal allege was illegally extended countywide after one small community approved it in 2015.

How local tax and bond measures perform in the June primary could be a harbinger of shifting voter sentiment, or it may merely confirm the historical reality, which is that these proposals almost always pass. Back in March of 2020, for the first time in a generation, Californians did not approve the overwhelming majority of new tax and bond proposals that were put before them. Out of 125 proposed local bonds, only 31 percent passed; out of 111 proposed local tax increases, only 41 percent passed. But as we have seen, in November 2020 California’s electorate returned to form, with over 80 percent of the measures passing, representing over 90 percent of the money.

When it comes to gauging the sentiment of California’s electorate regarding taxes, proposals put forward on the statewide ballot are indicative, with somewhat encouraging recent data. In November 2020, voters rejected the split roll property tax, Proposition 15, despite proponents spending over $60 million.

Then again, with a supermajority in the state legislature, California’s Democrats don’t have to win the approval of voters to increase taxes, they just have to get the governor to sign their legislation. The only reason the split roll initiative went before voters in 2020 is because it was an attempt to countermand the property tax limitations of the legendary Proposition 13, passed by voters in 1978. A ballot initiative can only be overturned by voters, not by the state legislature.

The California Tax Foundation just released a report summarizing the many ways the state legislature intends to raise taxes. Notable among them is the latest version of a wealth tax, AB 2289, which would impose an annual 1 percent tax on the assets of current and former California residents with a net worth in excess of $50 million, rising to 1.5 percent on net worth in excess of $1.0 billion. If passed AB 2289 would raise an estimated $22.3 billion per year. It would tax items of fluctuating value, such as stocks, and even items of extremely subjective value, such as fine art.

If a wealth tax may invite too much opposition from the wealthy to ever pass, there is also AB 2802, a carbon tax “on entities that emit greenhouse gases in California.” Watch out for this one. Currently dormant, it has too much potential to go away. Everything emits greenhouse gas – expect not only oil refiners and heavy manufacturers to pay this tax, expect it to be assessed, for example, on homebuilders who don’t build high density housing. The carbon industrial complex is really just in its infancy. Expect a version of AB 2802 to eventually pass. Initial projections indicate it will cost taxpayers $5.0 billion per year. That’s just the tip of the iceberg.

Less ambitious tax proposals are also moving through the state legislature, but like the many local tax proposals, in aggregate they amount to additional billions that pass out of the hands of taxpayers and into the coffers of an insatiable government. There’s AB 1223, which would impose an annual tax on every firearm in private hands. There is AB 2836, that will stack even more fees onto annual vehicle registration. There’s even a proposal, thanks to the rather creepy AB 501, to impose fees on cremation. And, possibly worst of all, ACA 1, which would lower the vote threshold for voter approval of additional categories of local tax increases. As it is, most local tax proposals require a two-thirds majority to pass.

There’s a reason that every year we see additional dozens of state legislative proposals and additional hundreds of local tax proposals, even though most of them pass and taxes continue to climb. To quote from CalTax’s recent report: “The state budget for 2021‑22 included $257.6 billion in total spending – a 13 percent increase from the prior year – and the governor’s proposed budget for 2022-23 calls for total spending to increase to $300.7 billion.”

A $300 billion state budget. This is a staggering increase. In 2014, eight years ago, the state budget was $152 billion. In today’s dollars that $152 billion is worth $184 billion. So during this eight year period when California’s population increased by a dismal 3.3 percent, the state government budget increased – in real dollars – by 64 percent.

How’s that working out for you? Maybe when it comes to good government, it isn’t the size of the budgets, but the success or failure of the policies that are costing all that money. This June, and again in November, California’s voters will have yet another opportunity to decide how they feel about those policies, and the tax proposals to pay for them.

This article originally appeared on the website of the California Policy Center.

Did Ballot Harvesting Impact March 3 Bond and Tax Proposals?

Next day returns on the special election for California’s 25th congressional district indicate that a Republican, Mike Garcia, is holding a 56 percent to 44 percent lead over Democrat Christy Smith. That looks awfully good for Garcia. And while in this case Garcia’s lead does look insurmountable, in California, early returns don’t always equal final results.

According to California’s current elections code, mailed in ballots are counted as long as they are postmarked by election day, and arrive up to three days later. In practice, this translates into final results in close elections being delayed for several weeks.

California’s election code also permits so-called “ballot harvesting,” which is alleged to swing the results of close elections. And unless, at the very least, both candidates and parties have equally effective voter harvesting operations, why wouldn’t it?

The process works this way: A campaign operative canvasses a neighborhood in the days prior to an election. Armed with a cell phone app that identifies which households have voters that are registered with the candidate’s party, they only knock on those doors.

“Hello, have you voted? No? You have not? Well do you have your ballot? Why don’t you fill it in and I’ll take it and submit it for you?” Or, if the person has already filled out their ballot, but haven’t gotten around to mailing it, “here, let me take that and get it mailed for you.”

Depending on who you ask, ballot harvesting in California was a major factor in flipping seven congressional seats from Democrat to Republican in November 2018. One thing is certain; in that election the GOP had almost no ballot harvesting operation, whereas the Democrats had thousands of paid operatives knocking on the door of every Democratic household in every battleground district.

Did Ballot Harvesting Affect the Outcome of Tax and Bond Proposals?

Plenty of controversy has been generated by the new statewide mandate to send mail-in ballots to every voter in California, along with ballot harvesting. But the focus has been on how this impacts elections to U.S. Congress or the State Legislature. Less evaluated but also impacted are votes on state and local tax and bond proposals. As part of every election, without fail, hundreds of localities put proposals in front of voters. And every election, several billion in new taxes and borrowing are at stake.

Historically, for several election cycles up to and including November 2018, California’s voters have overwhelmingly approved new local taxes and bonds. Typically over 70 percent of local tax proposals and over 90 percent of local bond proposals are approved by voters. But something happened in the primary election of March 3, 2020. Voters decided they’d had enough.

By tabulating data compiled by CalTax on local tax and bond proposals immediately after the March 3 election, the following preliminary voting results were reported:
This is a stunning result. Instead of 70 percent of local tax increases passing, only 31 percent of them were showing, so far, as approved. Instead of 90 percent of local bond proposals passing, 42 percent were showing as approved. But then what happened?

The next chart shows final results, which California’s dazzlingly efficient voting bureaucracy was able to deliver on April 21, only 49 days later. So what was the impact of late voting? How was the final outcome affected by the efforts of paid political operatives to knock on the doors of every Democrat and harvest the ballots they’d received in the mail?

As can be seen, for whatever reason, late vote counts did make a difference. The number of approved new taxes jumped from 42 percent to 44 percent. The number of approved bonds jumped from 31 percent to 36 percent. Don’t laugh. That’s another $171 million in additional annual taxes, and an additional $1.1 billion in new borrowing.

It’s worth wondering exactly how the percentages changed. For example, next day results showed 39 bonds passing, and final results showed 44 of them passing. But that’s a net number. What really happened?

The analysis performed to answer that question (an Excel file) can be downloaded here. It shows every tax and bond measure that appeared on a local ballot in California on March 3, comparing next day results to final results. In reality, eight bond measures that were losing a day after the election ended up passing, and two bond measures that were passing in the next day results ended up losing. With respect to the local tax measures, it was a bit closer: five tax measures flipped from fail to pass, and three flipped from pass to fail.

What Does It All Mean?

A New York Times journalist, Jennifer Medina, citing tracking data in California, reported that “roughly 56% of voters 65 and older returned a mail ballot. Just 19% of those younger than 35 did so.” Medina was reporting data from the May 12 special election in California, but it’s interesting to wonder if it holds true for the state at large.

Most of the analysis published in mainstream media, including the New York Times and the Washington Post, claim vote-by-mail does not help either party. Mainstream media also promotes a consensus that vote-by-mail does not increase the risk of fraud, as this typical analysis from NPR helpfully attests. But the NPR report also reinforces the argument that older voters tend to be far more likely than young voters to submit mail-in ballots.

With two elections already behind us in California in 2020, a few observations may be useful. First, voter sentiment has changed significantly. The level of support for new taxes and bonds has nearly inverted, a shift far too big to dismiss as a blip. With the pandemic shutdown having crashed public sector tax revenue, this should be a worrisome development for anyone who wants more taxes and more borrowing. Will the pandemic crisis exacerbate voter disillusion with new tax proposals, or offer them a new motivation to approve new taxes?

The other observation that might come out of these 2020 California elections is that vote-by-mail, notwithstanding possible concerns about fraud, may actually help Republicans. Voter harvesting, on the other hand, will harm Republicans. They will be harmed because it is unlikely that in California, where Democrats have far more money to spend (public sector unions, left wing billionaires), the GOP cannot hope to match the Democrat voter harvesting operation. And even if they do, come November, they will knock on GOP households that are far more likely to have already mailed in their ballots, whereas the Democrat households will be more likely to still be holding on to theirs.

This article originally appeared in the California Globe.

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