April 2006

Dan Walters, in the Sacramento Bee, wrote an editorial on the adversities of Rob (aka Meathead) Reiner’s insidious California Proposition 82 – the so-called “Preschool Initiative.” Walters makes several good points about the dangers of the initiative; he also points out that a similar mentality by Gray Davis and the Democrats, lead up to California’s fiscal crisis.

Excerpted from Walters’ editorial:

Reiner preschool measure would increase state’s fiscal peril

[This is] how Reiner would finance preschool – by imposing a 1.7 percent surtax on incomes above $400,000 for single taxpayers and $800,000 for those filing jointly. And that’s no small matter.

Reiner, who resigned last week amid bipartisan and media criticism of the ad campaign, chose to tax himself and other high-earners for the same reason that he sponsored a 1998 ballot measure that sharply increased taxes on smokers to provide children’s services – the Robin Hood theory. Polls very strongly indicate that raising general taxes – sales taxes, for instance, or all income tax brackets – is a nonstarter with voters, and raising taxes on business would generate well-financed corporate opposition.

However, those same polls indicate that voters would be inclined to tax high-income taxpayers, who already pay the lion’s share of income taxes, and noxious commodities such as cigarettes. That’s why, incidentally, former Assemblyman Darrell Steinberg also tapped upper-income taxpayers a couple of years ago with his ballot measure to finance mental health services.

So what’s the downside? Why should anyone sympathize with smokers or rich people? The problem with both is that they are making supposedly vital public services dependent on revenue sources that are very problematic. Cigarette sales are already declining sharply, which translates into lower revenue for the children’s programs that First 5 touts. And relying on personal income taxes is even more questionable because the downside exposure is even greater.

Rich people don’t, for the most part, depend on paychecks for their incomes. They are business owners, investors, executives with stock options, top-tier doctors, lawyers and other professionals, and highly paid athletes and entertainers. Thus, they have the ability to manipulate how much income they actually receive for tax purposes by, for instance, delaying stock sales or triggering stock options, or leaving business earnings in corporate treasuries.

William Hamm, a former legislative budget analyst retained by the anti-Proposition 82 campaign, contends that the ability to manipulate income, even transferring it to a tax haven state such as Nevada, could actually reduce state revenue by billions of dollars should the measure be enacted – not only for preschool but all state budget categories.

[ . . . ]

The reason the state budget has chronic, multibillion-dollar deficits is that former Gov. Gray Davis and state legislators squandered a one-time windfall of income taxes on permanent spending and tax cuts that could not be sustained when revenue growth returned to normal levels. Making another big program dependent on income taxes increases the risk that California will remain insolvent for many years to come, even if the rich don’t flee to tax havens. It’s skating on very thin fiscal ice.

Emphasis added.