To be fair, Brown knows that relying so heavily on a handful of taxpayers is bad policy. His original plan was to raise sales taxes as part of a broader budget patch, but the teacher’s union planned a rival ballot measure aimed squarely at the rich. Wealthy attorney Molly Munger backed her own tax plan as well (that’s what we do out here in California — everyone who’s anyone tries to govern by proposition).
Brown reckoned that if there were three tax hikes on the ballot, they’d all fail. So he cut a deal with the unions to get behind one that resembled theirs. “He came to this compromise because he had no other political choice,” says Dan Schnur, director of the Jesse M. Unruh Institute of Politics at USC.
A senior fellow at the Center for American Progress and the host of the new podcast “This...Is Interesting,” Miller writes a weekly column for The Post.
As a result, while Prop 30’s passage saves schools from devastating cuts for the time being, Brown has planted the seeds of future trouble. Follow the numbers: let’s say federal tax rates on top earners go back to 39.6 percent from 35 percent. Add in Obamacare’s new 3.8 percent tax on investment income and new 1 percent higher Medicare payroll tax on the same folks. Then toss in new top state rates of 11.3 to 13.3 percent (up from 9.3 and 10.3), and presto! Marginal tax rates for self-employed people in California earning $300,000 and up (who pick up both “sides” of the payroll tax on a chunk of their earnings) could reach 55 percent or more.
That’s dicey. It will almost certainly affect incentives and behavior. Yet Prop 30’s new inflow of $7 billion a year in a $100 billion budget won’t fix the state’s long-term budget woes, which are driven by spiraling health costs and massive unfunded health and pension benefits — not to mention sweetheart deals like those won by the powerful unionized prison guards, on whose slim ranks California now showers three times more cash each year than it devotes to its system of higher education.
The point? At both the state and federal level, middle class benefits and government services can’t be funded in a sustainable way just by ratcheting taxes ever higher on the top. Eventually middle class benefits and services must be supported by the middle class.
So we’ll need higher taxes, Grover, but not just on the rich, Jerry.
Neither party is ready to give up its dead idea yet. Which means we won’t get the debate we need anytime soon. That debate is this: Given that tax hikes in an aging United States are inevitable — including on the middle class — what’s the best and fairest way to do this with the least harm to economic growth?
This is the real “tax reform” conversation we need, and it would take us far beyond the approved Simpson-Bowles vocabulary that limits tax reform to the mantra of “lowering rates and broadening the base.” For starters, in an aging America we should be looking at slashing payroll and corporate taxes to boost jobs and growth and raising taxes on consumption, dirty energy and financial securities transactions to fund the government we want.
Whether we avert, postpone or go off the cliff next month — or some blend of all three — this is the conversation we’ll still need to get to in a few years.
Matt Miller is a senior fellow at the Center for American Progress and co-host of public radio’s “Left, Right & Center.” His e-mail address is firstname.lastname@example.org.