The most hotly debated initiative on the November ballot is Proposition 40, which would impose a 5% tax on the wealth of California billionaires. As this Editorial Board opined in our opposition, the union-created Billionaire Tax Act would send a dangerous message to current and future entrepreneurs, and “have a chilling effect on investment.”
But two closely related measures, Propositions 41 and 42, have received much less attention — partly because they’re so complicated. By adding related measures to the ballot, opponents of Prop. 40 are hoping that voters approve one of these alternatives that will derail Prop. 40. Because these two measures have elements that contradict Prop. 40, the one that gets the highest vote totals (if voters OK them all) would go into effect.
Adding similar-sounding measures also muddies the waters, thus increasing the likelihood that confused voters vote “no” on all of them — thus accomplishing the main goal of stopping the billionaires’ tax. But our goal isn’t to map out political strategies. It’s a worthy effort to try to stop a disastrous new tax scheme.
Besides their intended purpose of blocking Prop. 40, the measures could protect taxpayers for years to come.
Specifically, Prop. 41 would require one-time audits of programs that any proposed special taxes would fund. Those audits, which must be completed before the initiative appears on the ballot, would be required to identify ways that such programs could cut annual costs by 10%, per an analysis from the Legislative Analyst’s Office.
While Prop. 40 exempts itself from state spending limits, Prop. 41 also requires new special-tax revenues to count toward the Gann Limit — the 1979 constitutional amendment that caps the revenue the state can spend each year. The state has passed a number of workarounds over the years, but applying new revenues to this formula would potentially require the return of certain additional tax revenues to taxpayers and the earmarking of revenues to infrastructure.
Prop. 42 is more straightforward. Per the LAO, the initiative prohibits “new taxes on the ownership of financial assets or other personal property.” California doesn’t currently tax the ownership of financial assets and only taxes personal property in a limited way (e.g., vehicle license fees), but the measure’s passage “could make it somewhat harder for the state to raise taxes.” It also limits imposition of retroactive taxes.
So would the Editorial Board support these measures even if they were standalone initiatives? The answers are unequivocal: Yes and yes.
Regarding Prop. 41, California could use better audits of spending programs. It’s a good idea to identify ways to trim existing programs before shoveling more money their way. It is taxpayers’ money, after all. Requiring audits after election officials have collected only 25% of qualifying signatures imposes a relatively costly burden, but those expenses are a rounding error for any major program. We also believe the state should better live up to the terms of the Gann Limit.
Regarding Prop. 42, we endorse its efforts to limit unreasonable future tax increases. Going back and raising taxes on past earnings (as Prop. 40 does) before the new law was passed is unseemly. Opponents complain that it ties the hands of future Legislatures, but we’re totally fine with putting certain types of assets outside the revenuers’ grasp.
Vote yes on Propositions 41 and 42.