Would California voters accept tax increases in the midst of a severe recession? That’s the question of the moment.
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It’s the multi-billion-dollar question of the moment:
In the midst of a sudden recession that has erased, at least temporarily, millions of jobs, would Californians support a batch of new taxes to prop up state and local government services?
Gov. Gavin Newsom implicitly posed the question in his much-revised 2020-21 budget. It assumes a $41.2 billion drop in revenues from the initial budget he unveiled in January, pegs the total deficit at $54.3 billion and makes wholesale reductions in K-12 schools, higher education and other popular services to close the gap.
Newsom may be maximizing the state’s projected fiscal problem to bolster his plea, and that of other governors, for federal pandemic relief. But there’s no doubt that he and the Legislature have a big hole of some size to fill and with relief in Washington stalemated and a June 15 budget deadline looming, an option would be to boost state taxes.
Last week, the Education Coalition — a collection of unions, school boards and other school groups — pleaded with Newsom and lawmakers to ease the revised budget’s $6.9 billion reduction in state aid to K-12 school districts.
“Schools and colleges cannot physically reopen safely with the funding level proposed in the May revision,” the coalition said in an open letter.
Noting that Newsom proposes to raise $4.4 billion by suspending some business tax breaks, the coalition added, “We look to the administration and the legislature to identify and agree on alternate revenue sources, in addition to supporting the suspension of tax credits, to ensure K-12 schools can provide quality and safe educational environments for California’s six million students.”
“Alternate revenue sources” is obviously a euphemism for new taxes of some kind, most likely additional income taxes on those at the top of the economic ladder. Tax-the-rich has been a deficit-closing maneuver in past recessions and earlier, before the pandemic struck, some members of the coalition had proposed such an increase to raise school spending.
That proposal, which was to have appeared on the November ballot, was set aside to avoid competition with another measure, backed mostly by public employee unions, to raise property taxes on commercial buildings such as warehouses, hotels and office buildings.
The Education Coalition’s plea for “alternate revenue sources,” the commercial property tax increase already on the ballot and dozens of pending local government tax proposals frame the question: Do concerns about cuts in schools and other services outweigh the personal economic stress that millions of voters feel as their incomes shrink?
Newsom and legislators would not have to seek voter approval of new taxes, which could be passed with two-thirds votes in both legislative houses. But enacting a package of new state taxes could make it more difficult to gain voter approval of the commercial property tax, which would raise $10-plus billion a year for schools and local governments, and the pending local government tax measures.
Moreover, with Californians already bearing one of the nation’s highest tax burdens, adding more levies could slow economic recovery. Opponents of the commercial property tax are already arguing that it would force property owners to raise rents and would thus hammer small businesses, such as restaurants, that are foundering due to forced pandemic closures.
Were Congress and President Donald Trump to suddenly cough up the additional trillion dollars in state and local government aid that Newsom et al, seek, the tax question might fade, at least until November. But the chances of that happening anytime soon, if ever, are slim.