Congress, five million Californians may have a message for you: Don’t be afraid of raising taxes to rescue the budget. In Tuesday’s election, 54 percent of California voters approved Proposition 30, a $6 billion tax hike that staves off dire spending cuts. If the measure had failed, trigger reductions would have forced schools and community colleges to trim their budgets by $5.3 billion and made the state’s colleges and universities cut $500 million. Governor Jerry Brown staked his legacy on Prop. 30, betting that when consequences are clear, people are willing to pay.
Because of the automatic cuts that would have occurred, “this is the California equivalent of sequestration at the national level,” John Ellwood, a state budget expert at University of California, Berkeley, told me last month. Sequestration—aka the fiscal cliff—will trigger $600 billion in U.S. tax hikes and spending cuts in 2013 if Congress can’t reach a debt deal. Republicans have been rejecting any tax increases, while some Democrats oppose reforming entitlements. California’s case can provide an example that after lots of spending cuts, which California has embraced over the past few years, voters may be willing to fork over more money to keep government services running. “You can’t simply get more efficient” and trim spending more, Ellwood said; at some point, additional taxes must be on the table.
Prop. 30′s passage wasn’t a sure thing. As we reported two weeks ago, the measure had been polling in the mid-to-high 50 percent range for many months. But as the election neared, Prop. 30 was squeezed on both the right and the left by a nearly $90 million threat from a pair of wealthy siblings whose father, Charlie Munger, has been vice chairman of Warren Buffett’s Berkshire Hathaway (BRK/A) for 30-plus years. Charles Munger Jr. gave $45 million to a pro-business political action committee that opposed Prop. 30, according to data compiled by the Los Angeles Times. His half-sister, Molly Munger, fronted $44 million to bankroll her own competing tax hike-for-education proposition, according to Times data. Molly Munger’s proposition would have raised a greater sum from taxes over a longer period of time, but when her campaign turned negative, it created confusion among voters. (In California, people can vote in favor of competing propositions; if both pass, whichever has more votes is declared the winner.)
Brown stepped up his stumping efforts for the measure, but in the week before the election, the statewide Field Poll showed (PDF) that just 48 percent of likely voters supported it. Typically in the state, a measure with less than majority support in the polls will be voted down by voters. In the end, Brown’s measure got enough votes to prevail, and 72 percent of voters rejected Munger’s initiative. That means Californians have agreed to pay a 0.25 percentage-point increase in the sales tax for four years and have undertaken to hike income taxes on those with more than $250,000 in yearly income (those over $500,000 take a 3 percent increase) for seven years.
Prop. 30 is not a savior. The state still faces an additional $8.1 billion in spending cuts (PDF) to such programs as Medi-Cal and welfare-to-work in order to close a $16.6 billion budget gap. Even Prop. 30′s supporters admit that it merely restores California education spending to where it was a few years ago. But Prop. 30 does prevent further dramatic cuts, like universities trimming enrollments and school districts shaving weeks off the school year.
Thad Kousser, an associate professor of political science at UC San Diego, told me last month that the conditions for Brown’s proposition were “the best-case scenario for a tax increase” because “the stakes are clear.” With that clarity, California voted to tax themselves.