By ALLYSIA FINLEY
To get a tax hike that will satisfy California’s public unions, the governor pulls out the brass knuckles.
At the outset of his administration in 2011, California Gov. Jerry Brown pledged not to raise taxes without a vote of the people. But he never promised a fair election.
Mr. Brown has placed an initiative on the state ballot, Proposition 30, that targets “millionaires” who earn more than $250,000 annually. Persuading the 99% to raid the 1% normally shouldn’t be hard, yet voter distrust of government in the Golden State is such that Mr. Brown is having to pull out all the stops to get the initiative passed.
The governor originally proposed raising the top rate to 12.3% from 10.3%. That wasn’t good enough for the nurses and teachers unions, which pressed for a 13.3% “millionaire’s tax.” Mr. Brown succumbed. Due to the 11th-hour negotiations, he had to rely on help from high-placed friends to meet the secretary of state’s June 28 deadline.
Within two days of the initiative’s submission on March 14, state Attorney General Kamala Harris had given it an appealing ballot title—”Temporary taxes to fund education. Guaranteed local public safety funding.” (In theory, the rates are supposed to expire in seven years.) And the Legislative Analyst’s Office cranked out a fiscal-impact statement estimating that the tax hike would raise $6 billion annually.
Public unions then picked up about 75% of the tab for gathering signatures and paid workers twice the going rate ($3 per signature) to speed things along. Once the initiative received the secretary of state’s final stamp of approval on June 20, the legislature passed a budget trailer assigning it the top slot on the ballot, which they hoped would improve its odds.
And without so much as lifting a finger, the governor has raised $50 million for his ballot campaign—nearly four times as much as the opposition. Public unions have kicked in more than $30 million. He has also extracted, er, collected about $5 million from corporations, according to financial filings with the secretary of state. His biggest corporate sponsors not coincidentally belong to the state’s most heavily regulated industries—oil and gas, telecommunications, health and auto insurance and liquor.
A spokeswoman for Occidental Petroleum (which has contributed $500,000 to the governor’s campaign) explained in a statement that “like many other companies that are committed to doing business long-term in California, we’re concerned about the state’s continuing budget deficit.”
Translation: Corporations fear they’ll get hit if Prop. 30’s levy on high-income earners and small business owners who file as individuals flops on Nov. 6. “It’s a given,” says California Business Roundtable President Rob Lapsley, that Democrats will target corporations if the governor’s measure fails. “The unions will want revenues.”
Neither the Business Roundtable nor the California Chamber of Commerce is opposing the initiative. John Kabateck, the executive director of the National Federation of Independent Business’s California branch, says that big businesses don’t want to irritate Sacramento. And by contributing to the governor’s ballot campaign, they’re paying a form of political ransom in advance.
According to Mr. Kabateck and others, the Democratic-controlled legislature intentionally passes unwieldy laws to give the governor more leverage. Mr. Brown then taunts businesses with his veto pen to get them to pony up. For instance, the governor last month vetoed a ban on Styrofoam food containers that would hurt both manufacturers and the food industry (not to mention consumers who prefer their smoothies and frozen yogurt cold).
Mr. Brown is likewise trying to jawbone students and parents into voting for Prop. 30 by threatening to slash $5.5 billion from education. “It’s hurt the schools or take a little money from people who can well afford it,” Mr. Brown said the other day at the Bay Area Council.
School districts have sent parents letters warning of larger class sizes, a shorter school year and pared-back extracurricular programs. The California State University System has notified applicants that “the campuses will be able to admit more applicants if Proposition 30 passes and fewer applicants if the proposition fails.” The system promised to refund $500 to students if the tax hike passes—and to raise tuition by $300 if it doesn’t.
Although the governor is hawking his tax hikes as a school-funding measure, liberal civil-rights attorney Molly Munger has accused him of “misleading” voters. As she pointed out in one anti-Prop. 30 commercial, revenues would in fact flow to the general fund for politicians to divvy up—”That’s why Sacramento is behind it.” Ms. Munger is backing a competing referendum that would raise income-tax rates across the board and earmark revenues specifically for schools.
Labor groups and Democratic lawmakers responded to Ms. Munger’s inconvenient ad with a cease-and-desist letter three weeks ago cautioning that “the Munger family could be known as the millionaires who destroyed California’s schools and universities.” Ms. Munger’s conservative brother Charles, a physicist, has contributed heftily to the Small Business Action Committee, which has been running ads against Mr. Brown’s tax and for a paycheck-protection measure (Prop. 32) that would, in part, bar unions from withholding money from workers’ wages to finance their political spending.
Shortly after receiving the threatening letter, Ms. Munger yanked her ad.
The governor then proceeded to turn the screws on the Small Business Action Committee, which is headed by conservative online political editor Joel Fox.
Two weeks ago the committee received an $11 million contribution from the nonprofit Americans for Responsible Leadership, an issue-advocacy group based in Arizona that isn’t required to disclose its donors. “It’s complete money laundering,” Mr. Brown claimed on Oct. 20. The small business committee, he alleged, was serving as a front group for “major financial interests and powerful, powerful corporations and personalities.”
After Mr. Brown demanded an investigation, Attorney General Harris and the state’s Fair Political Practices Commission sued Americans for Responsible Leadership to force it to identify its donors. The organization’s failure to disclose its financial backers, the lawsuit claimed, could “cause great and irreparable harm to the voters of California by potentially denying them vital information.”
Mr. Fox won’t comment on the case, but Americans for Responsible Leadership is fighting back. The group’s attorney, Bradley Benbrook, insists in a legal brief that “this motion is a result of intense political pressure to have the FPPC ‘do something’ to keep this campaign issue alive.”
And the lawsuit has indeed helped Gov. Brown deflect attention from a much bigger story, which is that voters are souring on his tax hike. Three polls within the past two weeks have shown that support for the measure has fallen below 50%, with independents overwhelmingly opposed.
Jon Coupal, president of the Howard Jarvis Taxpayers Association that spearheaded the ballot campaign for a property tax cap (Prop. 13) in 1978, thinks voters will ultimately strike down the tax hike notwithstanding—and perhaps in part because of—the governor’s brass-knuckle tactics. “Californians aren’t antigovernment,” he says. “They’re just cynical.”
The legislature’s high-speed rail vote, small-ball pension reforms and a cash-hoarding scandal at the state parks department this summer showed that lawmakers aren’t born-again reformers who merely need voters to give them a second chance. On the contrary. Sacramento’s chronic spendthrifts are merely looking for another fix—and will do anything to get it.
Ms. Finley is an editorial writer for the WSJ. A version of this article appeared October 30, 2012, on page A23 in the U.S. edition of The Wall Street Journal, with the headline: Jerry Brown vs. the 99%.