Why California’s decision to raise taxes on its richest is historic


9:40 am - November 12th 2012

by Owen Tudor    


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The re-election of President Obama on Tuesday was undoubtedly an historic event – cementing universal healthcare, for example, and bucking the trend of anti-incumbency politics that has unnerved politicians in the developed world.

But it may be that the ballot in just one – albeit important – state of the union was the crucial event on that fateful day.

The national and state election races in California saw Democrats triumph with thumping majorities, and as more than one in ten US citizen lives there, it’s a pretty important state to win.

But more important is the story of two referenda 34 years apart. In 1978, California voted for Proposition 13 which capped state property taxes and is widely regarded as having marked the start of the global movement against taxation that has defined political life in the developed world for a generation.

Last Tuesday, the Californians who sparked the ‘small state’ revolution may well have acted as midwives to its end by endorsing Proposition 30 by 54%:46%. They voted for a temporary (7 year) progressive increase in income taxes on Californians with annual incomes over $250k, $500k and $1m as well as a 0.25% sales tax increase (expiring after 4 years), to prevent $6bn in spending cuts this year alone.

A clue to the cause of this major turnaround in California is that, like much of the developed world, the gap between rich and poor has ballooned since the 1970s. The Financial Times reports (£) that:

“During the 1970s, the richest 1 per cent in the state earned 10 per cent of personal income – then about $135bn. Their share has since increased to 22 per cent, while personal income has soared to $1.8tn.”

Small wonder that opponents like the Koch brothers, who last year bankrolled Wisconsin Governor Scott Walker’s attack on union collective bargaining rights (he now has the first openly gay senator in US history to pay for his troubles!), donated $11m to the campaign against Prop 30.

[Another propositions aiming to reduce union political activity was also defeated]


A longer version of this post is on Touchstone blog

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About the author
Owen Tudor is an occasional contributor to LC. He is head of the TUC’s European Union and International Relations Department and blogs more regularly at the Touchstone blog.
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Story Filed Under: Blog ,Economy ,Foreign affairs ,United States

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Reader comments


Tax increases similar to this have been eacted in France by Hollande….look at how well they’ve worked.

This will work very well as long as the richest 1% continue to increase their wealth disproportionately. However, if you have a tax system based solely on taxing the rich (who tend to suffer disproportionately in income loss during recessions), don’t be surprised if you run out of money when things get tight and you need it most.

@1 Tyler

Hollande has only been in office 6 months.

Neo-liberalism has had 40 years to stuff everything up and cause the largest financial crisis on record.

4. Richard Carey

BenM

“Neo-liberalism has had 40 years to stuff everything up”

so … 1972 to 2012 was the “Neo-Liberal Era”. What is it you mean by “Neo-liberal”? What came before? What was the turning point?

5. So Much for Subtlety

California is already a very high taxing state. Incompetently run. It is already facing a massive out flow of productive workers. Especially the sort of investors the State needs.

This is simply California’s suicide note. The State has been too successful. It has attracted too many takers and not enough makers. The tipping point has probably been reached. If you think this is a triumph, well, congratulations. It is more likely to mark the slow slide of California to the sort of failed narco-state Mexico is.

@SMFS #5:

California is already a very high taxing state.

Per capita, Californis state taxes together rank 11th in the US; less than twice the lowest state (Texas), less than half the highest-taxing state (Alaska).

” Incompetently run”

It wasn’t the democrats who picked a celeb to run for governer….

MULTIPLE LIES COMING FROM THE DEMOCRATIC MAJORITY ASSEMBLY IN THE SANCTUARY STATE.

Stephen Frank Stated on 11/14/2012 on California deficits as follows at http://capoliticalnews.com/

In the past two months, the cash deficit of the State has gone from $22.3 billion to $24.7 billion—just for the first four months of the year.
Plus the State OWES $12.5 billion to K-12 education

It owes $15 billion stolen from Trust Funds to cover cash deficit

It owes $10 billion BORROWED to cover the rest of the cash deficit. The State owes the Feds $10 billion for the loan to the unemployment insurance fund—so California can continue to send out unemployment checks.

That is a total of $71.5 billion—and there is more. Yet, the State claims “California faces a $1.9 billion deficit through June 2014, significantly smaller than in recent years after voters passed two tax initiatives last week, the nonpartisan Legislative Analyst’s Office said last Wednesday”
They claim we will have this small deficit, instead of $71 billion because of the $9 billion Prop. 30 is going to bring in, in new revenues! Any wonder our kids are illiterate—this is the math taught in our schools. Government lies—and tries to make you feel good about being insolvent.
Seems like marijuana must be legal in government offices, he has studied.

HOW MANY LEGISLATORS ARE BRAZENLY LYING ABOUT THE TRUE DEFICIT IN THE 50 STATES?

California has the highest population of illegal aliens who have settled there. Thousands of children of illegal alien parents gaining automatic citizenship and the cost is thrown at the taxpayers. Health care and other free handouts that are the right of citizens is being disbursed to anybody who sneaks across the border or steps off a plane. None of the 50 states is exempt from this silent attack on our country or the pilfering of their general treasuries. Now the Democrats have their majority public entitlements will be pouring out across the state to all the “Freeloader voters” the spongers and the people who have no intention of finding a job. A large proportion who pay no taxes at all, the parasitic people who are a great windfall for the Democrats and Liberals, who believe we owe them a living?

Obviously there is an exception to this rule, whereas there are special needs people, the sick and handicapped in some form or other. There are the homeless veterans and plenty other others, but we have become an public assistance nation, but some of the 49 percent that Mitt Romney talked about have scrounged their way through life and allowed the taxpayers to carry them. A great number have figured a way to deceive the welfare system, which is a stain on the real workers. Because the system could easily be thwarted, with stolen ID, the elderly and the sick lose their major assistance to the scroungers. When we cannot truly look after our troops returning from the warzones and still have millions of homeless without hope, then why are we either bringing in millions of legal immigrants, other than highly skilled workers that are always welcome?

Why is not illegal entry a Felony? CAN ANYBODY ANSWER THAT QUESTION?

IS CALIFORNIA TAXPAYERS COMMITTED TO SUBSIDIZE ILLEGAL IMMIGRANTS FOREVER?

BEFORE ANY PASSAGE OF IMMIGRATION REFORM FINDS ITS WAY THROUGH THE CONGRESS, TWO BILLS ARE A NECESSITY TO EVENTUALLY STOP THE INGRESS OF ANY MORE FLOWS OF ILLEGAL IMMIGRANTS. 1. THE LEGAL WORKFORCE ACT CONTAINING MANDATORY E-VERIFY AND HALT ILLEGAL ALIENS TAKING JOBS AND HOLDING EMPLOYERS ACCOUNTABLE. 2. A SIMPLE AMENDMENT TO END THE BIRTHRIGHT CITIZENSHIP BILL TO STEM THE INFLOW OF SMUGGLED BABIES EITHER UNBORN OR AS AN INFANT, INTO THE UNITED STATES TO GAIN INTENTIONAL RIGHTS TO BE A CITIZEN AND A MASSIVE FINANCIAL BURDENING THE U.S. TAXPAYER. 3. THE REINTRODUCTION OF FORMER PRESIDENT BUSH 2006 SECURE FENCE ACT IN ITS ENTIRETY. THIS IS A DOUBLE PARALLEL FENCE STRETCHING ALONG THE BORDER OF THE U.S STATES AND ITS SOUTHERN NEIGHBOR. AMERICA MUST REDUCE SANCTUARY CITIES, CHAIN MIGRATION AND THE ILLEGAL ALIEN INVASION. 4. A GOVERNMENT ISSUED PICTURE ID CARD, WHICH CONTAINS INFORMATION TO USE IN PROVING WHO YOU ARE?

This would be fine … if the rich will pay, which they will probably not.

I really wish people would get to grips with the idea that if you have an annual income of over $250K, you have enough money to pay someone to find you a way not to pay tax.

Already, California is seeing the migration of SMEs (who don’t have money to throw at tax avoidance so they can remain in California) over to states like Nevada with a lower business tax burden.


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