Eureka

Bipartisan Opportunism Is to Blame for California’s High Tax Rate

by David Crane
Friday, March 12, 2021
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Conventionally, Ronald Reagan is characterized as conservative. But as a first-term governor of California in 1968 (Reagan earned the job in 1966, denying Pat Brown a third gubernatorial term), he signed the Meyers-Milias-Brown Act, which endowed police and other local personnel with the power to bargain collectively with the governments that employed them, handing political power over local budgets to government employees who were the principal beneficiaries of those budgets.

Likewise, Jerry Brown (Pat Brown’s son and Reagan’s successor, beginning in 1975) is conventionally characterized as liberal. However, as a first-term governor in 1976, the younger Brown signed the Uniform Determinate Sentencing Act, which converted most sentences to mandatory-minimum periods specified by the state legislature, leading to an explosion of the states prison population (during the three decades after that law went into effect, California’s prison population increased by nearly 900 percent).

Why the two history lessons? Because today’s exaggerated convention is that California has the country’s highest income tax rate because it is dominated by one party (at present, Democrats occupy every statewide constitutional office and enjoy supermajorities in both legislative chambers).

Local public safety workforces in 1968 were dominated by personnel who were overwhelmingly affiliated with the GOP. By granting them collective bargaining rights, Reagan created a piggy bank to help finance GOP legislators. But in Sacramento, whats sauce for the goose is sauce for the gander. So in September of his first year as governor, Jerry Brown signed the Rodda Act, which granted collective bargaining rights to school district employees (it also established the present-day state Public Employment Relations Board, a quasi-judicial administrative agency charged with enforcing the collective bargaining statutes covering California state workers).

Together, the bills signed by Reagan and Brown laid the foundation for ever-greater spending on government employees. Thats because the police, fire, and school district employees who were the biggest beneficiaries of local and school spending were now the political powers determining who ran local governments and who sat on school boards. But that was just the beginning.

Just as police, fire, and school employee unions were driving up local and school spending, inflation was driving up property prices and property taxes. Taxpayers revolted in 1978 by passing Proposition 13, which capped property taxes and led to big deficits for local governments and schools. So, in 1979 Brown signed AB 8, which reallocated property taxes, took over county funding of many health and welfare programs, and boosted state aid to schools, effectively centralizing power in Sacramento. When combined with the Dills Act, which Brown signed in 1977, extending collective bargaining rights to state employees (the law affords state employees the right to belong to organizations that serve as their exclusive representatives in wage and employment negotiations), the final stage was set. Thereafter, politically empowered state employees got their way with legislators and governors on both sides of the aisle, leading to an explosion of prison building and compensation increases (including a retroactive pension increase in 1999 that passed with overwhelming support from both parties). The result has been persistent pressure to raise taxes to fund ever-growing spending on government employees.

A current example of California’s bipartisan capitulation to public employees is OPEB—formally, Other Post-Employment Benefits”—chiefly, health insurance for retired employees and their dependents costing the state $10 billion per year. Those benefits are provided even when the retiree or dependent has another job that offers insurance, is covered by Medicare, or is entitled to premium support from the Affordable Care Act.

No other state in America showers such subsidies on retired employees, who are already entitled to the highest pensions in the land. But both parties have been obstacles to OPEB reform because both fear retribution from government employee unions. If you have any doubt about that, check out donations to legislators on both sides of the aisle.

The antidotes are to repeal collective bargaining rights for government employees or to offset these voters’ power with persistent support of our political parties from donors who care about the general interest (full disclosure: Govern for California provides such support), not to whine about one-party dominance.

David Crane is a lecturer in public policy at Stanford University and president of Govern for California.