It looked like California might be turning a corner in the coronavirus recession, as unemployment leveled off at a jarring 16.3%, and thousands of waiters, bartenders and hair stylists were going back to work. Then came the surge in infections, and with it a new wave of business closures.
One option: Tax the state’s millionaires and commercial landlords, then reinvest the cash in communities such as the Central Valley, which 99Rootz supports.
Crisantema Gallardo is the 29-year-old director of 99Rootz, a Central Valley youth organizing group fueled by outsider energy and, of late, first-hand knowledge of communities ravaged by the pandemic.
But 99Rootz has also joined a coalition of powerful labor unions and other left-leaning groups, the United Front, in campaigning for this fall’s “split roll” ballot measure to raise taxes on commercial property, Prop 15, and a new 1%-3.5% millionaire tax proposal, AB 1253.
It’s a nightmare scenario for the state’s Republican minority and business groups, which have already added the proposals to lists of “job killers” and issued familiar warnings that rich Californians will simply leave for lower-tax states. But other Democrats also oppose the new wealth tax — let alone multiple new taxes — amid a recession expected to drag on until at least 2023.
They argue that labor unions stand to disproportionately benefit from new taxes, and that the state’s already tenuous budget could be further derailed by major financial reforms.
David Townsend, a Sacramento political consultant who runs a business-backed political action committee that works to elect Democrats, said: “You’re getting a little greedy when you’re trying to tax everything that moves for your own personal interest.”
What to Do Next?
There is broad agreement among California Democrats about things that are bad — record unemployment, unaffordable housing, police brutality — but stark disagreement about what to do next.
A group of moderate Democrats led by Senate Majority Leader Bob Hertzberg has proposed a $100 billion stimulus packagewith no new taxes, instead relying on federal loans, complex financial mechanisms and vouchers that encourage taxpayers to pay taxes early. A formal bill with detailed revenue projections is yet to be introduced.
“We have to be smart about how we fund government,” Hertzberg said during a hearing earlier in August on the proposed millionaire tax. “The way we’re doing it now is causing unnecessary problems, causing unnecessary tension among parties, isn’t really solving the underlying architecture of what we’re trying to do.”
In the middle of it all is Gov. Gavin Newsom, who has yet to show his cards on a preferred plan to dig the state out of its deep financial hole. The Legislature passed a $200 billion budget this spring that was heavily contingent on federal reimbursement, which remains an uncertain prospect given President Donald Trump’s frequent political attacks on California’s liberal cities.
A biology student at UC San Diego, Eugene Vang believes the political calculus pales in comparison to concerns at home. He thinks state funding should be deployed to help stave off evictions, or provide health care during the pandemic to friends and family who work in grocery stores, Amazon warehouses and the Central Valley’s vast farm lands.
“Why we’re so passionate is because we’re living it,” said Vang, who started organizing fellow teenagers with 99Rootz three years ago. “We’re not asking for too much.”
Economy Isn’t Working for Everyone
Even skeptics of aggressive financial reforms have developed common refrains about California’s slow-burning inequality crisis: “Our economy isn’t working for everyone,” state Controller Betty Yee said at a finance committee hearing this week.
“We know that people aren’t left behind in society, they start behind in society,” Newsom said at a recent press conference on racial inequality. Metaphors about rising tides and how many boats are or aren’t lifted have figured prominently in state economic forecasts for years.
What’s different now is that the coronavirus and its swift economic fallout, plus simmering state and national uprisings against racism, have given new visibility to financial policy ideas that once may have seemed completely impossible.
The author of the millionaire tax bill, Los Angeles Democrat Miguel Santiago, is also backing a bill to create a state public bank, AB 310. Another measure winding through the Legislature, AB 398, would tax employers with more than 500 employees $275 per worker — a “head tax” modeled after places like Seattle, which are asking corporations to pay more for side effects of rapid job growth including unaffordable housing.
“We’re talking about folks who are doing extremely well in California while the rest of California hurts,” says Assemblymember Miguel Santiago (D-LA), author of AB 1253. “This affects less than .5% of tax filers in the state.”
Lessons From the Great Recession
Looming large in conversations about where to go from here on revenue are the financial scars of the Great Recession, when several California cities went bankruptand the state’s credit was downgraded. Now, moderates argue that new income and property taxes that go up and down with the economy undercut the state’s financial stability, and that ideas like a state public bank are unproven. Many of California’s billionaires have gotten richer during the pandemic, but advocates debate how risky it is to implement new taxes and potentially chill spending with businesses already struggling.
The new millionaire tax bill was “a surprise to many” this late in a legislative year scheduled to end Aug. 31, said Peter Blocker, vice president of policy for the California Taxpayers Association. He warned that many millionaires have lost money during the recession, which could make it difficult to pay permanent higher taxes, and to pay them retroactively as called for in the bill.
But Emmanuel Saez of UC Berkeley’s Center for Equitable Growth said that any “instinctive move to austerity measures” could be more harmful long-term. Voters have approved past temporary taxes on high earners, including 2012’s Proposition 30 to fund education. He favored raising taxes now to fund areas that will pay off later, and was skeptical of threats that high earners will move out of state.
“We are still far from a tipping point,” Saez said. “It is more fruitful economically to protect education in California, which creates tomorrow’s income.”
In the Central Valley, Gallardo and Vang have already seen the political landscape change dramatically in recent years, from when it wasn’t possible to make a living as an activist to sustained battles over clean water, evictions and now, how to cope with several crises at once. The WiFi they rely on to organize is still spotty, but Vang has been thinking lately about his offline future — specifically, running for office.
