California’s Voters Approve New Taxes and Reject Tax Repeal

Although hundreds of election results remain to be decided across California, thanks to millions of vote-by-mail ballots still being counted, we can already project with reasonable accuracy the total amount voters approved in new taxes and borrowing. At the local level, new taxes nearly always are approved by voters. In 2016, out of 224 local tax proposals, voters approved 71 percent, adding $2.9 billion in new taxes. As shown on the table, if a similar percentage of November 6, 2018 local tax measures are approved by voters, California’s taxpayers will be providing local governments with another $1.6 billion per year.

Total Estimated New Annual Taxes Approved by California Voters, November 2018

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While these new local taxes add billions – over time, tens of billions – of additional burden on California’s already beleaguered taxpayers, state ballot measures often offer even more significant tax increases. This November, voters turned down an opportunity, via Prop. 6, to eliminate an estimated five billion in new gasoline taxes. In all, California’s voters enabled another $6.1 billion in annual taxes, in a state that already has among the highest overall tax rates in the U.S.

California’s Total New Debt

The impact of new taxes is immediate. Rates go up, revenues increase, and government budgets swell. Compared to taxes, the impact of bonds is greater in the long run, but harder to recognize. In reality, bonds are just deferred taxes. From a financial perspective, it would almost be preferable to use taxes to fund many projects that currently rely on borrowing, because at least taxpayers would only be paying principal, and not interest. For example, if you assume 3 percent inflation, the present value of the payments on a $1.0 billion bond (5% interest, 30 year term) is $1.3 billion. That is, in real dollars, using a typical example, bond financing costs taxpayers 30 percent more than paying for services using operating funds. But the seduction of borrowing is hard to resist: big money today, while mortgaging tomorrow.

Total Estimated New Borrowing (incl. Annual Payments) Approved by California Voters November 2018

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As it is, this November, voters mortgaged a lot of tomorrows. And as always, the big money in the case of new bonds was almost all local. In 2016, of the 193 new local bond measures, voters approved a whopping 94 percent of them. This added $32 billion in new debt, equating to an estimated $2.1 billion in new annual principal and interest payments. As shown on the table, if a similar percentage of November 6, 2018 local bond measures are approved by voters, California’s taxpayers will owe another $15.5 billion. The principal and interest payments on this new debt will cost taxpayers another $1.0 billion per year.

At the statewide level, despite rejecting Prop. 1, the water bond, voters approved three new major state bond measures totaling $6.5 billion. Adding that to the likely $15.5 billion in local bonds, Californians this November will have added $23.0 billion in debt, costing $1.5 billion per year in annual payments of principal and interest.

California’s Total Accumulated Debt

Who was it that said, “a billion here, and a billion there, and pretty soon we’re talking about serious money”? That would describe California’s total state and local government debt. When you look at what constitutes California’s total debt, accumulated over decades, it puts the relentless drive for higher taxes into context. The next table summarizes California’s total debt, as estimated by California Policy Center researchers Marc Joffe and William Fletcher in a 2017 study entitled “California’s Total State and Local Debt Totals $1.3 Trillion.”

Added in column two of this table is the estimated annual payments on this debt. As can be seen, the conventional debt – bonds, loans, and other contractual debt – paid back over 30 years at an interest rate of 5 percent, is costing California’s taxpayers $27.7 billion per year. Add to that, of course, annual payments of another $1.5 billion on new debt approved by voters earlier this week. But it’s in the unfunded liabilities for public employee retirement benefits where truly serious money burdens California’s taxpayers.

California’s Total Estimated State and Local Government Debt 2018

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The story of how California’s taxpayers ended up on the hook for unfunded retirement pension liabilities easily in excess of a half-trillion dollars defies glib explanations. Anyone wanting to dig deep into California’s public sector pensions is encouraged to read the California Policy Center primer “Resources for Pension Reformers” and click on the many links for in-depth analyses of this complex topic. Simply put, an unfunded pension liability is the difference between the assets being managed by a pension fund at any time, and the present value of all promised future payments to retirees and active workers that have been earned up to that same point in time.

Over nearly three decades, some critical mistakes were made in California’s public employee pension fund management. Pension benefits were increased, again and again, by politicians eager to curry favor with public employee unions, but didn’t want to blow their current year budgets by granting salary concessions. Instead, they sweetened future pension benefits which did not incur significant immediate costs. Then the required annual costs to fund pensions were underestimated. Rates of return on invested pension fund assets were overestimated. Life expectancies were underestimated. And as the assets of California’s state and local pension systems began to fall well behind the value of their liabilities, creative accounting was employed to understate the amounts needed to reduce that debt.

Because of all these unknowns, there is a wide range of estimates of California’s total public sector pension debt. At the least it totals over a quarter trillion; at most, about triple that amount. This much is reasonably certain: if there is an economic downturn, and if pension benefits aren’t further reduced, it is likely that payments on pension debt will need to be in excess of $50 billion per year. In all, absent reforms and an epic continuation of the bull market, Californians are likely to be paying over $90 billion per year on state and local government debt. More than half of that will be to pay down unfunded pension liabilities.

The Public Sector’s Insatiable Desire for More Money

It is impossible to view California’s relentless pattern of tax increases apart from its public sector pension crisis, which is just beginning. Currently, the estimated annual payments on unfunded pension liabilities in California is estimated at $17 billion. Imagine the impact of that amount soaring to $55 billion. Just based on modest adjustments to the assumptions governing projections of pension solvency, and based on official announcements already made by California’s largest pension fund, CalPERS, the ongoing (normal costs for pension benefits earned in the current year by active workers) plus the unfunded payments for pensions are estimated to rise from $31 billion in 2017 to $59 billion by 2024. No tax increase, anywhere so far, not even all of them added up, are sufficient to cover this shortfall.

If analysts find California’s looming pension funding crisis alarming, public employees who receive these pensions find it terrifying. That’s why, when a new local tax or bond measure is on the ballot, local governments use taxpayer funds to engage in “information campaigns” aimed at their voters that come very close to being political advocacy. Sometimes they cross that line. After such activities in support of a local sales tax increase in Los Angeles County, the California Fair Political Practices Commission found cause to charge the county, as well as the individual members of the Board of Supervisors, with 15 counts of campaign finance violations.

Californians had a chance to apply vigorous pressure to its elected officials by passing Prop. 6, which would have repealed the gasoline tax. That repeal would have cost state and local governments $5.0 billion per year. Why wouldn’t Californians seize an opportunity to lower what are the highest gas taxes in the U.S.? The answer reveals more about California’s public sector, and their desperate need for more revenue.

Earlier today and in the aftermath of the Nov. 6th election, Carl DeMaio, a former member of the San Diego City Council, who launched the Prop. 6 campaign, described the tactics of the opposition. California’s attorney general is responsible for reviewing ballot initiatives and approving the final wording of these initiatives as they appear on the ballot. According to DeMaio, rather than objectively describing the intent of Prop. 6, which was to repeal the new gasoline tax, his department used focus group research to compile a title and summary for the initiative that was worded in a manner more likely to get people to vote no. But it didn’t end there.

Not only is California’s attorney general alleged to have doctored the language of Prop. 6 to draw down voter support, California’s public sector unions spent millions on an opposition campaign. Overall, the opposition to Prop. 6 spent $50 million on their campaign, compared to only $2.6 million spent by its proponents.

Even in California, $50 million buys a lot of airtime. Lost on California voters, sadly, was the irony of a veteran firefighter who made $324,000 in 2017, serving as the main television spokesperson opposed to Prop. 6 which would have lowered taxes. California’s public sector unions collect and spend at least $800 million per year. They can, quite literally, spend as much as they need to spend to defeat candidates and propositions that do not favor their own interests.

Why don’t California’s voters and policymakers overcome high taxes and an unaffordable cost of living? Partly it’s due to the grip that public sector unions have on politicians, which prevents the state legislature from ever getting spending under control. Partly it’s the lack of any effective opposition, since the supposedly tax averse Republican party in California is a hollow shell, lacking on-the-ground infrastructure, strong candidates, or a shared and compelling political agenda. Saddest of all, it’s because the media in California is entirely unwilling to make the connection between public sector compensation, the power of public sector unions, and the punitive taxes and living costs that are its consequences.

This article was originally published by the California Policy Center

Gavin Newsom and Impending Tax Increases

Gavin newsomIn his successful campaign for governor Gavin Newsom promised to advance a number of programs like universal pre-school, health care for all and education that will be costly. Where does he get the money while also considering how to reform the state’s tax system?

Shortly after the election, fellow Democrats, including Assembly Speaker Anthony Rendon are also talking tax increases.

If the Democrats secure the two-thirds supermajority in the legislature required to raise taxes—which appears likely at this time—the foundation will be in place for tax increases.

In a state notable for decades as the home of tax resisters, there are signs that voters may not object. In the last few statewide elections voters have raised income and sales taxes and rejected repeal of gas taxes and extending property tax breaks.

On the local level, voters continually vote to raise numerous taxes.

How many more tax increases are in the future and where will Newsom draw the line?

Is Newsom planning on confronting Proposition 13 when the split roll appears on the 2020 ballot—a position his predecessor, Jerry Brown, avoided?

Newsom is already listening to Senator Bob Hertzberg, re-elected Tuesday, to consider an overhaul of the entire tax system that would include some form of service taxes. If Newsom wants to spend political capital on such an ambitious effort it would likely come soon.

However, Newsom has said such an effort would take time. Look for another tax reform committee to be formed—which would be the fourth such committee over the last 20 years.

Or the incoming governor could rely on Hertzberg’s connection with Nicolas Berggreun’s Think Long Committee to do the heavy lifting on formulating a tax reform plan….or cut an overall tax package deal in the legislature that could include a move on commercial property taxes.

Another question: Will tax reform venture into the difficult area of spending issues, particularly the cost of pensions?

And what happens if the economy turns sour? Are all bets off on reform…or is that the time to go for it considering California’s current tax structure was birthed in the gloom of the Great Depression.

Look for early signs on tax questions in the budget and official announcements from the governor’s office.

This article was originally published by Fox and Hounds Daily

Schools, cities and counties asking for $20 billion in new taxes

voteThe ballot California voters will tackle on election day is a long one, with dozens of candidates and 11 statewide propositions. While a lot of attention has been devoted to those choices, little has been given to scores of local ballot measures asking for permission to borrow or tax in communities — proposals totaling some $20 billion for schools, cities and counties.

How the local measures ended up on the ballot depends on the community, though all were written by local officials. There are other common threads too — many of these governments have limited options when it comes to funding. State income taxes go to Sacramento; property taxes are constrained by the rules under California’s landmark Proposition 13. And the dollars that do flow from the state and federal governments are often earmarked and off-limits for use on general community needs.

Local dollars are hard to raise at the ballot box. While statewide propositions only need a 50%-plus-1 of the votes cast, some municipal measures need more to succeed. Local bonds require a supermajority vote, with most school construction bonds requiring 55% voter approval. The threshold for taxes, meanwhile, is counterintuitive. Taxes aimed for a narrow purpose or program must win two-thirds of ballots cast. But if it’s for broad government operations, a new tax can be imposed with a simple majority. …

Click here to read the full article from the L.A. Times

Will California Voters Approve $3.6 Billion Per Year in New Taxes?

VotedWith the 2018 general election a few weeks away, it’s time to review just how many tax increases are on state and local ballots in California. And while media attention focuses on the statewide tax measures, even bigger money is represented by the sum of hundreds of proposed local tax increases.

Every election cycle, the California Taxpayers Association (CalTax) produces a list of local tax and bond proposals. After every election, they provide information as to how many were approved by voters and how many failed. Using CalTax data, it can be seen that in November 2016, California’s local voters approved 181 bonds, mostly for school construction, totalling an incredible $32.3 billion. Annual payments on these bonds will cost California’s taxpayers an estimated $2.1 billion per year. At the same time, local voters approved 159 new tax measures, mostly increases to local sales taxes and parcel taxes, adding another $2.9 billion in annual payments.

If you add up all the voter approved new taxes in November 2016, state and local, you have to include not only $5 billion in new local taxes and payments on local bonds per year, you also have to add the voter approved statewide measures. That would include Prop. 51, adding yet another $9 billion in school bonds (estimated payments $585 million per year), and Prop. 55, the extension of the “temporary” increase to state income taxes on personal incomes over $250,000 per year (estimated collections, between $4 billion and $9 billion per year), and Prop. 56, the $2.00 tax increase per pack of cigarettes (estimated collections just over $1 billion per year).

Before turning to 2018, it’s important to also note that in 2016 the Democrats recovered their two-thirds majority in the state legislature, meaning they could pass new taxes without voter approval. And in 2017, that’s exactly what they did, adding twelve cents per gallon to the already high state taxes on gasoline and increasing vehicle registration fees. Voila, another $5.4 billion per year in taxes on Californians.

When considering how California’s proposed new taxes will fare with voters in November, history is a good indicator. In November 2016, ninety-four percent of local bond measures were passed by voters, and seventy-one percent of new local taxes were approved. Similarly, this past spring, in the primary elections of 2018, California’s voters approved eighty-three percent of local bond measures ($200 million per year in annual payments), and sixty-five percent of new local taxes ($228 million in new taxes per year). Statewide, Californians approved a $4 billion “water” bond (Prop. 68), which equates to another $260 million per year in annual payments.

Which brings us to November 2018. The table below shows 125 new local bonds are proposed. If they are all approved by voters, that will add another $1.2 billion in annual payments. In addition, 259 new local taxes are proposed, which if approved will total another $1.6 billion in annual payments. This time, along with the perennial hikes to sales taxes and parcel taxes, the other popular new mode of taxation is marijuana, with 73 of California’s cities and counties proposing to cash in on sales of recreational cannabis.

California’s Local Tax and Bond Proposals – November 2018

If historical trends apply this time, California’s voters will likely approve four-fifths (or more) of the local bond measures, and two-thirds (or more) of the local tax increases. This will equate to roughly $2 billion in new taxes and payments on bonds per year. And then there are the statewide initiatives.

On California’s November ballot there are four bond proposals, totaling $16.4 billion in additional borrowing. Prop. 1 issues $4 billion in bonds for housing programs and veterans’ home loans. Prop. 2 sells future revenue from the millionaire’s tax for $2 to guarantee $2 billion in bonds for homelessness prevention housing – that’s tax revenue that has to be made up somewhere else, so yes, it counts. Prop. 3 issues a whopping $8.9 billion in bonds for water-related infrastructure and environmental projects. And Prop. 4 issues $1.5 billion in bonds for children’s hospitals. Total payments on these bonds? Another $1.1 billion per year.

To summarize, in 2016, voters approved new taxes and payments on bonds (not including the $4 to $9 billion per year in “millionaire” taxes that were not new, but were continued by the passage of Prop. 56) totaling $6.5 billion per year. In the 2018 June primary, California’s voters approved another nearly $700 million in new taxes and payments on bonds. And this November, voters have the opportunity to approve (or reject), $3.6 billion per year in new taxes and bond payments.

For the children. For education. For safety. For safe drinking water. The list goes on, and the stories are compelling. But here’s the problem: Even if all of the 2018 tax and bond payments are approved, and those payments are added to the payments on new taxes and bonds already approved in Nov. 2016 and June 2018, the total is “only” $10 billion. Why “only”? Because the estimated payments on public employee pensions in California are estimated to increase from $31 billion in 2018 to $59 billion in 2024, and that is the “normal” scenario, not one reflecting the impact of a major correction in the value of stocks, bonds, and real estate.

Money is fungible. When more tax revenues go to pension funds, vital publicly funded programs are either defunded or new taxes are imposed to keep them alive. Similarly, when more tax revenues go to pension funds, maintenance projects that might have been funded using operating budgets, suddenly become capital projects requiring debt financing.

Californians may expect a deluge of new tax and bond proposals for many years to come.

Locals Governments Seek New Levies Despite $4 Billion Property Tax Surge

taxesLocal government officials throughout the state got some very good financial news when county tax assessors toted up changes in taxable property values for their 2018-19 budgets.

The state’s uber-strong real estate market generated a 6.51 percent increase in those values, adding another $374 billion to the property tax rolls and pushing the total to $6.1 trillion.

That increase, three times the rate of inflation, translates into $4-plus billion more in revenue for cities, counties and other local governments. While schools also receive property taxes, they don’t directly benefit from the increase because of how state aid is structured.

The big winners are cities because, unlike counties and schools, they are almost totally dependent on local taxes and fees to finance their budgets. San Francisco, which is both a city and a county, reported the state’s strongest assessed valuation gain, 10.35 percent.

The very strong growth in property tax revenue, however, raises a pithy question: Why then are so many local governments, cities especially, complaining that they can’t balance their budgets unless local voters raise taxes?

There are 254 local tax increases on the November ballot – sales taxes, parcel taxes, utility taxes and hotel/motel taxes, mostly – according to the California Taxpayers Association, 65 percent more than there were four years ago.

The reason is that even with strong property tax gains, local governments’ pension costs are growing faster than revenues, thus putting the squeeze on their budgets.

Cities have been hit the hardest by increases in mandatory payments to the California Public Employees Retirement System (CalPERS) as it tries to shrink its large “unfunded liability.” City officials have repeatedly complained about the specter of insolvency if pension payments continue to grow and the League of California Cities has labeled the situation “unsustainable.”

With very rare exceptions, however, officials who place the tax increases on the ballot will not publicly say the extra revenue is needed to offset rising pension costs. Officials believe that telling the truth would make voters less likely to vote for the new taxes. It could also make employee unions less likely to provide money for tax campaigns.

Rather, on the advice of high-priced consultants, they say the money is needed for popular police and fire services and parks.

Unfortunately, most local news media are carelessly complicit in this conspiracy of silence, tending to accept the official reasons at face value, rather than analyze them critically. That’s true even though data about what revenue the new taxes would generate and projections of pension costs are readily available.

Over the weekend, for instance, the Sacramento Bee published a long article about proposed tax increases in Central Valley cities, quoting officials about what they hoped to do with the extra revenue, including Sacramento Mayor Darrell Steinberg, who called his one-cent sales tax hike a “game changer.”

However, the article only tersely mentioned pensions as something brought up by unnamed “critics,” even though the city’s own budget complains about pension costs and data indicate that the new taxes would largely go to pensions.

The Santa Cruz Sentinel, in a similar piece about new hotel/motel tax proposals in its region, took the opposite – and more responsible – tack by delving into how pensions are straining local budgets and driving tax hikes.

The Sentinel’s article, unfortunately, is a very rare exception. Otherwise, local officials and local media seem to believe that ignorance will be blissful.

olumnist for CALmatters

CA Next to Last in Business Tax Climate Report

TaxesThe Tax Foundation has surveyed all 50 states on tax climate that businesses face and once again placed California near the bottom of the list. The Golden State ranked 49th, dropping one spot from the previous year’s ranking. Only New Jersey had a sorrier tax climate than California, according to the Tax Foundation analysis.

Why is the tax climate important for business? As the Tax Foundation points out, “The modern market is characterized by mobile capital and labor, with all types of businesses, small and large, tending to locate where they have the greatest competitive advantage. The evidence shows that states with the best tax systems will be the most competitive at attracting new businesses and most effective at generating economic and employment growth.” 

The Tax Foundation report ranks California in different tax categories. While overall, the state placed 49th, the state’s Corporate Tax Ranking was 31; Individual Income Tax Rank was 49; Sales Tax Rank 43; Property Tax rank 14 and Unemployment Insurance Tax Rank 17.

The report made it clear that businesses didn’t rely exclusively on the tax climate in making business decisions. Skilled-labor pool, education and infrastructure are also factors business executives consider.

But tax systems can more quickly influence the business climate because tax changes can more easily be implemented when compared to making major changes in the areas of transportation, health care or education systems.

As the report notes, “It is important to remember that even in our global economy, states’ stiffest competition often comes from other states. The Department of Labor reports that most mass job relocations are from one U.S. state to another rather than to a foreign location.”

Business taxes are an important bottom line calculation. If taxes reduce profits that reduction is often passed to consumers through price increases, taken from employees through wage cuts or lost jobs or lowering shareholder dividends, all factors contributing to the business climate and business decisions, which in turn effects a state’s economy.

California has the top individual income tax rate, the top state sales tax rate, and is second in state gasoline tax per gallon rate. The Tax Foundation calculated that the state’s “Tax Freedom Day,” when a taxpayer has paid all tax obligations, is May 1.

ditor and co-publisher of Fox and Hounds Daily.

This article was originally published by Fox and Hounds Daily

Prop. 6 – Gas Tax Repeal – is a grassroots initiative

Gas PricesProposition 6 is an initiative measure appearing on the ballot less than one month from now that would repeal the tax hike on gasoline and cars imposed by Sacramento politicians last year without a vote of the people. If Prop. 6 passes, California’s gas and car tax would still be in the top five among all 50 states.

Supporters of Prop. 6, those advocating for the repeal of the tax hikes, have focused their campaign on several compelling points including California’s overall tax burden (highest income tax rate and state sales tax rate in the nation) and California’s high cost of living. Other arguments favoring Prop. 6 include the well-documented waste of taxpayer dollars spent on transportation, the lack of any reforms and a decades-long history of diverting transportation dollars away from roads and highways.

The Yes on Proposition 6 campaign is being advanced by a coalition of grassroots taxpayer organizations and the state’s Republican Party. It has virtually no big corporate support.

The opponents of Proposition 6, those who desire to retain our status as a high-tax state, consist of interests that benefit financially from public construction projects. These include construction companies, labor organizations and local governments who thirst for ever more taxpayer dollars. They have contributed tens of millions of dollars to the opposition campaign for an obvious reason. The millions they invest in a political campaign produce a great return on investment if the payoff is more than $5 billion of new taxpayer spending annually.

It is apparent at this point that the opponents of the gas tax repeal will outspend supporters by a 10-to-1 margin.

But the tactics of the opposition campaign have put it in hot water.

To read the entire column from the Los Angeles Daily News, please click here.

Battles Fought to Stop Tax Hikes in CA Legislature

CapitolWhile on the campaign trail prior to the 1988 election, Republican presidential candidate George H.W. Bush uttered the now infamous words, “read my lips, no new taxes.” Of course, this was a pledge he broke, which likely cost him reelection.

The mission of the Howard Jarvis Taxpayers Association is to protect Proposition 13 and to advance taxpayers’ rights, including the right to limited taxation, the right to vote on tax increases and the right of economical, equitable and efficient use of taxpayer dollars.

Unfortunately, this value set is shared by too few politicians in Sacramento.

Because of that, taxpayers rarely are able to obtain meaningful reform in the state Capitol. California’s reputation for high taxes and burdensome regulations is well deserved and taxpayers are usually able to obtain relief only through the powers of direct democracy including initiative, referendum and recall.

While many wish this wasn’t the case, the stark reality is that legislators have voted for eight taxes (six of which became law) since 2012.

In nearly all instances it was Republicans (usually opposed to higher taxes) who joined with tax-and-spend Democrats to provide the final vote for tax increases ranging from car registrations, to gas taxes, to lumber and battery assessments and mattresses.

Thankfully though, no taxes were approved in 2018.

Don’t misunderstand, the tax-and-spend lobby wasn’t taking the year off just because of the upcoming November election. If anything, they were eager to follow up on their three victories last year, which included the infamous gas tax and a tax on recorded documents. Governor Brown made it clear in 2016 that he desired a permanent source of revenue to fund transportation, affordable housing, and clean water programs. He got the first two last year so only the water tax remained.

The fight over the water tax was very contentious. First, no one doubted the importance of having access to clean water, particularly in the Central Valley where decades of neglect and mismanagement of water systems created the problem in the first place. But imposing a dollar-a-month tax on all residential water users in the state to address a local problem made no sense. The cost to fix the problem was estimated to be $120 million of one-time money, which reflects a tiny percentage of California’s General Fund budget. Thankfully, Senate Bill 623 failed before the Legislature’s summer recess in July and taxpayers and their allies, mostly California’s local water agencies, breathed a sigh of relief. …

Click here to read the full article from the Los Angeles Daily News

New Measure Would Limit Impact of Federal Tax Overhaul on Californians

TaxesGov. Jerry Brown will have to decide soon on whether to once again put California in direct conflict with the Trump administration – this time with a newly passed bill which has the near-unanimous support of Republican as well as Democratic state lawmakers.

It’s Senate Bill 539, by U.S. Senate candidate Kevin de León, a state senator from Los Angeles. The measure would limit the impact on affluent residents of the new $10,000 federal limit on deducting state and local taxes from federal tax returns by sharply increasing an existing tax credit for contributions to a college scholarship program already run by the state.

If SB539 is signed by Brown, families making more than $100,000 – especially homeowners – could potentially save billions of dollars with the new, much higher 75 percent credit. In 2015 – the most recent year for which statistics are available – 6.1 million California tax filers used the state and local tax deduction, with an average of $18,438, according to the Tax Policy Center.

This explains the bipartisan appeal of the measure, which passed the Assembly and Senate with a total of two negative votes – one Republican (state Sen. Jim Nielsen of Fresno) and one Democrat (Assemblyman Jim Frazier of Contra Costa County).

It’s not clear whether Brown will sign the measure. While he called the Republican tax overhaul approved last December “evil in the extreme” at the time it was being considered by Congress, he’s been reported to be skeptical that any state tax avoidance effort would be accepted by the Internal Revenue Service.

That’s the impression the IRS has sought to create since the state and local tax deduction was limited. And last month, the IRS proposed a 15 percent cap on deductibility of certain gifts, including to state programs like the one that would benefit from SB539.

IRS rule could reduce deductions for private tuition

The proposed IRS rule is so broad, however, that Gannett News Service reported on Aug. 24 that it could affect laws allowing for state and local tax credits for charitable contributions in 34 states. In several Republican-dominated states, these credits are available for private school tuition.

This generated a sharp reaction from EdChoice, an Indianapolis-based national nonprofit organization that’s devoted to encouraging alternatives to traditional public schools.

“The IRS chose to adopt a new rule after New York and a few other states who overtax their citizens at the state and local level had the audacity to create federal tax-dodging schemes,” EdChoice told Gannett. “These tax-dodging schemes do not compare in intent or purpose to the charitable programs created years ago to help children access K-12 education where they fit in and can learn.”

Treasury Secretary Steven Mnuchin, however, disputed the idea that the proposed IRS rule would have a heavy impact on donations to private schools and to school choice advocates.

In July, four states – New York, New Jersey, Connecticut and Maryland – sued the federal government over the deduction limit, saying it amounts to unconstitutional “double taxation.” The Tax Foundation says those states and California are the five where taxpayers will face the biggest hit.

But most tax experts think the lawsuit is unlikely to win, given the long-established primacy of Congress in setting tax laws and of the IRS in interpreting them.

California has already sued the Trump administration more than 50 times – but not, so far at least, over the tax deduction change.

This article was originally published by CalWatchdog.com

New Proposed “Voluntary” Tax on the Water You Drink

Drinking waterAnother new tax is headed for your water bill, as if it wasn’t high enough already.

Gov. Jerry Brown has been trying to push through a statewide tax on drinking water, the first ever in California history, and as you might imagine, it has been a challenge for him.

People are fed up with new taxes. That was demonstrated very convincingly in the June recall of state Sen. Josh Newman, D-Fullerton.

All the political tricks that were employed to save him — delaying the election, allowing voters to withdraw their signatures on petitions, lifting the cap on campaign contributions from other politicians — failed to prevent voters from firing the politician who cast a critical vote in favor of a huge increase in gas and car taxes.

That tax hike will face its own reckoning in November, when voters will have the opportunity to repeal it by passing Proposition 6, a ballot measure that also mandates voter approval of any future attempts to raise those taxes.

But despite the clear anger of the voters, or perhaps because of it, the trickery continues.

The water tax proposed in Senate Bill 845 would be “voluntary.”

Here’s the trick: Unless you opt out of paying it, you’ll pay it.

How do you opt out? It will be up to each “community water system” to figure that out, but you can bet the cost of the new paperwork will be added to your water bill some other way.

The purpose of the drinking water tax is to provide clean water for about a million rural residents in areas where the groundwater is contaminated.

That’s certainly important, and you’d think the state would fund that priority with some of the tax money Californians already pay.

You’d be wrong. California’s not run that way. Instead, you pay the highest state taxes in the nation, Sacramento spends all the money on things voters would never approve, and then for anything voters think is important, Sacramento insists on a new bond or tax.

Read your ballot this fall. Politicians are pleading for billions more to pay for water, veterans’ housing and children’s hospitals. No need to ask for more money to pay for state salary increases and Caltrans featherbedding — that’s covered already.

Connected to the proposed water-tax legislation is SB844, which would impose fees on dairy producers and companies that manufacture or distribute fertilizer.

The money would be deposited into the same “Safe and Affordable Drinking Water Fund” set up by the bill that imposes the water tax.

But the dairy and fertilizer producers get something extra for their money: protection from pesky regulators at state and regional water boards

SB844 prohibits certain enforcement actions for “causing or contributing to a condition of pollution or nuisance for nitrate in groundwater.”

The Agricultural Council of California and the Western United Dairymen are in support of these bills, as are the various environmental justice groups that are sure to receive grants from the new pot of money.

The Association of California Water Agencies opposes the legislation.

Nobody asked the water customers for their opinion, but if you’d like to give it to them, call your representatives in the state Assembly and Senate. You can look up their names and contact information at findyourrep.legislature.ca.gov. Don’t delay.

In Sacramento in August, legislation moves like you-know-what through a goose.

olumnist and member of the editorial board of the Southern California News Group, and the author of the book, “How Trump Won.”

This article was originally published by Fox and Hounds Daily