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State Props. 86, 87 and 88 Look to Use New Taxes

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Fund for Local Reporting! Three propositions on the November statewide ballot seek to raise taxes to support various state programs. Proposition 86 would tax cigarettes to support health projects, Proposition 87 would tax oil producers to fund and encourage alternative energy sources, and Proposition 88 would increase educational spending through a parcel tax.



Proposition 86—Tax On Cigarettes

This ballot measure would add an additional state tax of $2.60 per cigarette pack to “fund new and expanded health services, health insurance for children, and expand tobacco use prevention programs.”

State tax on individual cigarette packs are currently 87 cents, most of the money earmarked for early childhood development programs, tobacco education and prevention, and health care for low-income uninsured people and approved by voters under previous propositions. With California cigarettes currently selling at approximately $4 per pack, the tax would bring the cost of a pack of cigarettes in this state to $6.60. If the proposition is passed, existing state law would require the state Board of Equalization to increase taxes on other tobacco products—snuff and chewing tobacco, for example—by a comparable amount.

The mechanism for spending the money proposed to be collected under Prop. 86 is somewhat complicated.

Forty-two percent would go into something called a Health Maintenance and Disease Prevention Account, which would split the money between the expansion of existing children’s health coverage, health education programs aimed at specific diseases or conditions such as colorectal, breast, and cervical cancer, heart disease and stroke, obesity, and asthma, and a public relations campaign aimed at encouraging citizens either to reduce smoking or not take up smoking at all.

But assuming that a combination of the stiff increase in taxes and anti-smoking campaigns would result in a decrease in the use of cigarettes, 53 percent of Prop 86’s money would go toward making up of the loss of income for programs that were dependent on money earmarked from the existing cigarette tax.

In some ways, therefore, Proposition 86 is a schizophrenic measure, not seeming to be sure whether its purpose is to raise taxes to fund health programs or to reduce smoking. The more it reduces smoking, the less taxes are raised and, therefore, the less tax money can go to fund health programs.

The proposition is supported by representatives of such groups as the American Cancer Society, the American Heart Association, and the American Lung Association, under the obvious banner that cigarette smoking is bad, and anything that curtails it is good, and that more money for state health programs is even better.

The proposition is opposed, predictably enough, by cigarette manufacturers but also by a coalition of taxpayers organizations, local chambers of commerce and law enforcement agencies. The law enforcement agencies make the most novel argument against—that the increased cigarette tax would encourage smuggling operations, thus having a ripple effect on crime in the state.



Proposition 87—Oil Production Tax To Fund Alternative Energy

This proposition seeks to reduce petroleum consumption in California by creating a $225 to $485 million annual program that would encourage the use of energy sources that are not oil-based. The program would be funded by a tax on California oil producers. California oil producers, obviously, are not particularly pleased with this idea.

It was a little-known fact—until this proposition was put on the ballot—that California is the third-largest oil producing state in the nation (behind Texas and Alaska, naturally), with a 12 percent share of United States production. While oil companies pay state income tax on profits earned in California, as well as a 6.2 cents per barrel fee on all oil pumped at gas stations located in California, apparently, unaccountably, they pay virtually little in oil drilling fees in the state. Oil companies in oil-friendly Texas and Alaska, on the other hand, reportedly pay billions a year in such fees.

Prop. 87 would authorize the collection of such oil drilling fees for oil produced inside California (in a formula that’s about as complicated to explain and understand as anything in the energy production field), the money to be deposited in something called the California Energy Independence Fund.

That money, in turn, would be disbursed to individual accounts with impressive-sounding names (58 percent to the Gasoline and Diesel Use Reduction Account, 27 percent to the Research and Innovation Acceleration Account, 10 percent to the Commercialization Acceleration Account, and 4 percent to the Public Education and Administration Account), each of which, in their own particular way, would encourage or facilitate the use of various “clean energy” alternatives to oil and its cousin, gasoline.

While the proposition prohibits these proposed new oil production taxes to be passed on to consumers through higher gasoline prices in California, someone in the state Legislative Analyst’s Office with a sense of the understatement and a knowledge of energy industry executives writes, a little drily, that “it may be difficult to administratively enforce this provision [emphasis in the LAO’s original analysis].”

The proposition is supported by, among other organizations, Americans For Energy Independence, Public Citizen, the American Lung Association, the Sierra Club, and former President Bill Clinton (be sure to turn down the volume on your computer if you click on the www.yeson87.com website; Mr. Clinton’s talk-to-the-folks-in-the-last-row voice can make you jump, coming unexpectedly at you like that).

Their argument? Oil should pay its fair share in California as it does in Alaska and Texas and other oil-producing states. Funding clean energy alternatives to oil is good, and making the oil producers themselves pay for the competition is, well, somehow appropriate.

Prop. 87 is opposed by the oil companies themselves, of course (what would you expect?), but also by a long and disparate list of major California newspapers, starting with the Los Angeles Times, the San Francisco Chronicle, and the Sacramento Bee. There appears to be a dual opposition argument: the proposed tax will decrease overall taxes coming from a booming and important California industry, the oil producers, and that the tax will result in higher prices for California crude, thus encouraging refineries to turn to foreign oil.



Proposition 88—Real Property Parcel Tax For Educational

Funding

Amends the California Constitution to impose a $50 tax on most real property parcels (elderly and disabled homeowners are excepted) to provide additional public school funding for kindergarten through grade 12.

Up until now, while the state allocates some $38 billion out of its budget for K-12 education across California, that money comes out of general tax revenues, not a state parcel tax. Parcel taxes, which impose an annual fee on individual properties, are used by local school districts to supplement state money (Berkeley voters have approved such a local school parcel tax, as well as voters in Oakland).

Proposition 88 would now create a state education parcel tax. The proposed tax would raise approximately $450 million annually, with some $30 million going to the state General Fund to “offset a decline in state income tax revenues,” $1 million going for county administrative expenses, and the rest divided among the schools.

There is little doubt that public school systems are woefully underfunded all across California, and local districts—be they affluent or low-income or in between—would all be able to put added money to good use. The question is, is a state parcel tax the best way to collect that money?

Critics argue that parcel taxes are regressive. For those who missed economics and civics classes, progressive taxes (such as federal income taxes, at least in the days before Bush II) are designed to impose an increasingly heavier rate from the lower-income to the higher-income on the theory that the higher-income folks are better able to absorb net losses to their income. Regressive taxes, such as a parcel tax, charge everybody equally, regardless of income. That is often perceived as unfair, since $50 to a low-income family might mean cutting back on essentials, while a high-income family might lose $50 in change between the sofa cushions and never miss it.

Another argument against a parcel tax is that because local school districts use that form of taxation to supplement the educational funding already coming from the state, having the state get into the parcel tax game puts the state in direct competition with the local school districts. At some point—no-one could predict when—even the most education-supportive taxpayers (such as those in Berkeley), would be expected to say “enough,” at which point it would be the local school bond measures that would most likely suffer.

In rebuttal, proponents say that local schools need more money, and a state parcel tax is the method to ensure that they get it. “Local superintendents, principals and teachers,” proponents say, “will decide where these resources can be most effective, instead of leaving those important decisions to politicians or bureaucrats in Sacramento.”

Prop. 88 is supported by a collection of progressive organizations (Working Assets, San Francisco Young Democrats, Raoul Wallenberg Jewish Democratic Club, the San Francisco Bay Guardian), but notably missing are representatives of folks who usually line up to support increased money for schools: school boards, PTA or teachers. They are on the other side. Prop 88, in fact, has lined up about as diverse a collection of opponents that you can imagine, people who normally are never on the same side of an issue: the California State PTA, the California Federation of Teachers, the California Democratic Party, Governor Arnold Schwarzenegger, the California Republican Party, the California Federation of Labor, AFL-CIO, the Howard Jarvis Taxpayers Association, the California School Boards Association, the Small Business Action Committee, the California Taxpayers Association, the League of Women Voters… This is beginning to sound like piling on.