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The CTA's tax initiative: A symptom, not a cure

By Peter Schrag, Sacramento Bee Columnist, April 7, 2004

2005 Version of Tax the Rich, Pay for PreSchool

Even if it weren't a blatant piece of single-interest ballot box budgeting, the proposed education initiative now being circulated is so riddled with problems that it deserves the ripping it's likely to get if it makes it to the November ballot.

Because there are likely to be two other tax increase measures on the ballot - one has already made it - none has a great chance of passing. But the self-styled Improving Classroom Education Act being run by the California Teachers Association (the state's biggest teachers union) and actor-director Rob "Meathead" Reiner is in a class by itself.

The measure seeks to raise $6 billion for preschools and for class size reduction, teacher salaries and materials in K-12 schools. The money would come from a split roll in which commercial property is taxed at a higher rate than residential property.

If that were done well, it wouldn't be a bad way to rectify some serious inequities in the state's tax structure.

At the same time it would generate more revenues from businesses that have borne a shrinking share of the state's property tax burden and that have enjoyed a hefty series of other tax breaks, state and federal.

But it isn't done well.

In 1980, according to the California Budget Project, homeowners paid less than 32 percent of the total property tax. Last year, that had risen to more than 38 percent, effectively an increase of over 20 percent of the burden. That's because, officially, commercial property changes hands - and thus is reassessed - less frequently than residential property.

The word "officially" is shorthand for the fact that while majority control of the stock of most corporations - i.e. real ownership - turns over roughly every three to five years, that change is not reflected in reassessments. Nor is the fact that a lot of commercial property is leased and thus turns over even more slowly.

But the Reiner/CTA proposal doesn't address that problem. Instead, in their pursuit of a fat windfall, the sponsors want to increase the rate on all commercial property by 55 percent. That's an anti-competitive step that hits new businesses - most of them small businesses - particularly hard and gives established operations, which are assessed at far below market value, an even larger advantage than they have now.

Had the measure required the annual assessment of all commercial property at real market value, it would have eliminated a major distortion in the market and created incentives for property to be used more efficiently. An exemption could have been created to protect mom-and-pop enterprises.

But that's only one of its problems. Since the initiative requires no accountability for how the K-12 windfall is spent - it leaves that to local districts - there's no assurance that they won't spend it as they have in the past: throw most of it on the bargaining table for the sponsor-union, which will gobble it up for salary and benefits hikes for teachers who are already the highest paid in the country.

The kids, the parents and the community get little in return. There are no incentives to reward successful teachers, much less draw them into the classrooms - mainly those serving poor and minority kids - that most need them.

The sponsors argue that because local school boards will control the money, it will be spent responsibly. But the record indicates that the lion's share of every boost in unrestricted funds to local districts usually goes to salary and benefit hikes that, in too many cases, the districts couldn't afford and later drove them to the verge of insolvency. That's hardly surprising since a lot of those districts are dominated by their own unions.

In a state with a high cost of living, a great many teachers aren't paid nearly enough. But some are paid far too much, and little in the system - certainly little sponsored by the CTA - has encouraged differential pay to create incentives for quality.

But the worst thing about this grab for money is that it's all earmarked for one purpose. The split roll has long been regarded as a possible way to raise general revenues while at the same time making the property tax system more economically efficient. The Reiner/CTA proposal - win or lose - kills that possibility for many years to come.

Of course the schools need more money. Contrary to the proponents' handouts, we're not 45th in the country in our per-pupil spending. But we are 30th or maybe 33rd, below the national average and far below what a state like this should spend.

And of course, the public's general distrust of the Legislature makes it nearly impossible to raise revenues not earmarked for some objective the voters support. But each such measure compounds the problem, making it harder for government to respond to new situations - the current deficit not least among them.

Last week there were rumors that the Reiner/CTA drive would be suspended in favor of yet another CTA deal with Gov. Arnold Schwarzenegger. Gale Kaufman, who's running the campaign, emphatically denied them.

Robin Hood-like soak-the-rich schemes are popular but dangerous

By Dan Walters , Sacramento Bee Columnist, April 19, 2005

His name is Rob Reiner, but it could be Robin Hood - the fictional character who hung out in Sherwood Forest and, with his band of merry men, robbed the rich to help the poor. Reiner, the actor-director best known for his 1970s television role as Archie Bunker's son-in-law, Michael "Meathead" Stivic, previously persuaded California voters to boost cigarette taxes to finance children's programs.

Now he wants voters to impose $2 billion-plus in higher taxes on California's highest-income residents, couples with taxable incomes of $800,000 or more (or individuals with more than $400,000), to finance universal preschool.

Let's set aside, at least for the moment, the issue of whether universal preschool programs are cost-effective means of improving educational performance, as their proponents insist, or merely boondoggles to buoy school spending in the face of flattening K-12 enrollment, as some believe. Let's assume that preschool is a wonder drug that will erase all of society's ills.

There's another issue here: Whether surtaxes on the affluent are the way preschool, or any other worthy program, should be financed.

There's certainly political appeal in soaking the rich, as the enduring popularity of the Robin Hood fable indicates; actually, Hood & Co. were taking back what the aristocratic rich had stolen from the hardworking poor, but that nuance often gets lost.

Polls of California voters have indicated that they're willing to expand government programs as long as they don't have to pay for them, giving rise to the ditty: "Don't tax you, don't tax me. Tax the fellow behind the tree."

Thus cigarette taxes are popular because only a minority of California voters smokes, as are taxes on the rich who, by definition, are a numerically small group.

That's why former Assemblyman Darrell Steinberg's 2004 initiative used an income tax on the wealthy to finance expansion of mental health services. And it's why Democratic politicians up and down the ladder are constantly talking about closing the state's deficit with new taxes on high-income taxpayers.

There are, however, four drawbacks to this tax-the-rich approach - not problems for the wealthy, but reasons for the rest of us to give pause.

First, there are limits on how much water one can extract from that particular aquifer without its running dry. The rich can move money around; they can change their places of residence to some state - say, Nevada - which does not levy an income tax, or divert income into other streams to avoid California taxes. At the very least, raising upper-end income taxes would bolster California's already fearsome reputation as an expensive place to live and work.

Second, you can't finance everything from income taxes on the wealthy. Steinberg's already dipped into the well and now Reiner wants to drop his bucket. But how then can other Democrats look to the same source to close the state's horrendous budget deficits? Treasurer Phil Angelides, the most active Democratic candidate for governor next year, wants to use income taxes on the wealthy to close the deficit and finance expansions of health, education and other spending.

Third, the Reiner measure would dedicate all the new taxes to preschool, continuing the "ballot box budgeting" that partially underlies the state's chronic fiscal crisis.

Most important, it would worsen the state's dangerous reliance on personal income taxes to finance public services. We already have a steeply progressive income tax that derives the vast majority of its revenues from a relative handful of high-income taxpayers, and their incomes, in turn, are highly dependent on the stock market, which creates a high degree of volatility, as a recent report from the Legislature's budget office demonstrates.

We have budget deficits now because politicians couldn't resist the temptation to blow a one-time income tax windfall on permanent spending and non-income tax cuts, and making us still more dependent on income taxes would increase that danger.

If preschool or any other program is worthy of society's support, we shouldn't rely on gimmicks such as cigarette taxes or income surtaxes to finance it. We should all be willing to pay for it.

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Last modified: April 19, 2005

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