Briefing Report: Assault on Taxpayer Protections

Overview

The last few summers in Sacramento have been extremely heated, more so because of budget talks inside Legislative chambers than the weather outside the Capitol. On one side, Republican lawmakers are holding the line on taxes. On the other, Democrats are trying to squeeze Californians for more of their hard-earned money. And when the budget is late, liberals accuse anti-tax lawmakers of being obstructionists – often pointing to the Constitutional requirement of a two-thirds vote on the budget and tax increases as the problem.

Since they can’t win by playing by the rules, Democrats this year have proposed a number of bills to change those rules and dismantle Constitutional protections against a variety of tax increases, including Proposition 13.

Constitutional Protections

When our state founding fathers drafted the California Constitution, they envisioned a document that would achieve balance between the people’s freedom and rights, and government’s role in protecting those rights. After the Preamble and Article I’s declaration of the people’s rights, Article II opens by stipulating that:

“All political power is inherent in the people. Government is instituted for their protection, security, and benefit, and they have the right to alter or reform it when the public good may require.”

To that end, the Constitution deliberately limits government’s ability to spend the people’s money and increase the people’s taxes.

Article IV – Protecting the people’s money

Section 12 (d) of Article IV of the Constitution dictates that appropriation of General Fund monies, primarily derived from taxes, is void unless it is approved by two-thirds of both houses of the Legislature. Appropriations of special funds, or non-tax revenues, require only a majority vote.

Clearly, the Constitution intends tax revenues to be expended with greater caution and fiduciary responsibility. And it is for this very reason that the state budget requires a two-thirds approval – to safeguard the people’s money.

Yet at a time when California must most stringently manage the state’s finances, liberals propose doing away with the two-thirds requirement so that they can spend taxpayer money, unrestrained.

Article XIIIA – Protecting the people from tax increases

On June 6, 1978, after being fed up with skyrocketing property tax increases that were forcing some owners from their homes, Californians enacted Proposition 13. This landmark measure added Article XIIIA to the Constitution to limit tax increases in a number of ways.

· First, it restricts property taxes to 1 percent of the assessed value; and caps increases in property tax assessments to 2 percent per annum.

· Second, it requires two-thirds of the Legislative membership to approve any increase in state taxes; and approval of two-thirds of the voters for special taxes in local jurisdictions.

These restrictions were instituted to limit the size of government and force governments to operate within its existing resources. This means not only reducing bureaucracy and eliminating special interest carve-outs, but when necessary, making hard decisions to trim some government services.

Attempts to Dismantle the Constitution

California is facing one of the toughest economic periods in the history of the state. Budget deficits are in the $24 billion range and growing. Unemployment rates are predicted to exceed post-World War II highs. The Unemployment Insurance Fund that provides financial compensation for the jobless is bankrupt. Businesses are closing their doors or moving out-of-state en masse. And millions of California families are struggling to stay in their homes.

And what is the Democrat-controlled Legislature doing to slow down this economic train wreck? Other than trying to appease labor union bosses and passing legislation that will add another $10 million to the budget shortfall, Democrats are busy trying to run end-games around the Constitution so they can take more taxpayer money. Take a look:

· Senate Constitutional Amendment 9 (Ducheny)¹ takes California back to the pre-Proposition 13 days when taxpayer money was treated with the same disregard as other state revenues. It eliminates the Constitutional requirement that taxes be increased only if two-thirds of the Legislature approves the increase. This legislation would enable Democrats to easily increase a whole host of taxes, including the sales and income tax, by any amount for any duration.

· Senate Constitutional Amendment 6 (Simitian)² makes it easier for school districts to increase parcel taxes on homeowners by eliminating the requirement that tax increases must receive approval by at least two-thirds of the people on whom the taxes will be imposed. Instead, parcel taxes would be increased when a mere 55 percent of the local electorate concur. Amid this housing crisis, parcel taxes will hurt low-income families more than those with greater incomes because the poorest families will pay the same amount as the wealthiest. In addition, it will allow wealthier areas to spend more money on their schools than other areas, which has been determined to be unconstitutional.

· Senate Constitutional Amendment 12 (Kehoe)³ allows counties to increase property taxes by more than 1 percent per year to raise money for specified purposes. In order to accomplish this, the proposal also allows tax increases with only 55 percent voter concurrence.

· Senate Constitutional Amendment 5 (Hancock)⁴ would altogether eliminate any shred of bi-partisanship on the annual state budget. Instead, a majority of the politicians in Sacramento could spend taxpayer money willy-nilly on their special interest pet projects and when it comes to paying for the costs, these same politicians can raise taxes and have Californians foot the bill, because they don’t pay income taxes.

The last time a measure to eliminate the two-thirds majority vote requirement made it to the ballot was in 2004. Proposition 56 failed miserably, with 65 percent of the voters objecting.

Two-thirds majority requirement at work

Tax-and-spend politicians claim that achieving a two-thirds majority is virtually impossible and that this requirement hinders their ability to raise revenues. Nothing could be further from the truth. What these liberals fail to recognize is that voters do, in fact, support tax increases if and when they deem them to be necessary and compelling.

Take, for example, the November 2002 election in Riverside County. Right after the dot-com bubble burst and taxpayers were taking huge losses in the stock market, voters in Riverside County overwhelmingly reauthorized their local sales tax increase by an approval rate of 69 percent. Being one of the most conservative counties in the state, Riverside and its success at reauthorization proves that the two-thirds majority vote requirement is effective, even during tough economic times. And history is filled with such examples.

With the current constitutional requirements, governments are less able to take their voters for granted. Instead, government must prove in a compelling way, to an appropriately skeptical citizenry, that a tax increase of a particular magnitude for a particular period and for a particular purpose is warranted. Should we expect any less from government?

Conclusion

Just last month, on May 19, 2009, Californians voted on Proposition 1A – a measure placed on the ballot by the Legislature that would have extended a variety of tax increases for two more years. On a 2-1 margin, the voters loudly and clearly said “NO” to taxes. Despite this anti-tax mandate, liberals are trying to find ways to get around the voters instead of listening to them. The Constitution stipulates that all political power is inherent in the people and they have the right to alter or reform government for the good of the public. If trying to force taxes on the people doesn’t warrant reform, what will? Did someone just say “California Tea Party”?

For more information on this report or other Revenue & Taxation issues , contact Therese Twomey, Senate Republican Office of Policy at 916/651-1501 or Therese.Twomey@sen.ca.gov

1 Authored by D. Ducheny, representing the counties of San Diego, Imperial, and Riverside
2 Authored by J. Simitian, representing the counties of San Mateo, Santa Clara, Santa Cruz
3 Authored by C. Kehoe, representing San Diego County
4 Authored by L. Hancock, representing the counties of Alameda, Contra Costa