California Taxpayers Rout Prop 56

Published May 1, 2004

On March 2, California voters soundly rejected Proposition 56–a proposal opponents said would make it easier for state policymakers to spend more and increase taxes to pay for their extravagance.

Sixty-six percent of California voters rejected the measure, thereby keeping in place the state’s requirement that no budget and budget-related tax and appropriation bills may pass without a two-thirds majority of the legislature.

“The Blank Check Initiative [Prop 56] would have eliminated the most important protection taxpayers have against unjustified state tax increases–the two-thirds legislative vote required before Sacramento can raise our taxes,” said Larry McCarthy, president of the California Taxpayers’ Association.

Had Prop 56 passed, tax and appropriations bills would have required the approval of only 55 percent of legislators.

Business Leaders Reject Measure

The California Chamber of Commerce led a business community effort to defeat Prop 56, marshaling a broad-based coalition that ran ads and mobilized voters.

“We all thank the California State Chamber for immediately recognizing the threat this proposition posed to taxpayers and jobs, and for successfully leading the coalition that defeated it,” said Peter Cressy, president of the Distilled Spirits Council (DISCUS).

The California Restaurant Association, Family Winemakers of California, and California Lodging Industry Association were also among the hospitality industry groups joining the Chamber-led coalition.

“Had this initiative passed,” Cressy continued, “there is no doubt that the hospitality industry in California would have been subjected to extremely onerous job-killing taxes. This is a victory for beer, wine, and spirits as well as the wholesalers, restaurateurs, and other retailers who came together to spearhead the fight against this labor-backed initiative.”

DISCUS and its member companies, along with beer and wine distributors and other sectors of the hospitality industry, raised $2.9 million to fight the initiative. The Chamber-led coalition together raised approximately $10 million. Proponents of the initiative, primarily government employee labor unions, spent more than $15 million in their unsuccessful effort to pass the measure.

The Chamber of Commerce-led effort was bolstered by the efforts of taxpayer, small business, public safety, and senior advocacy organizations. Among the groups that formally announced their opposition to the measure and worked toward its defeat were the California Taxpayers’ Association, Howard Jarvis Taxpayers Association, Sacramento County Taxpayers League, National Tax Limitation Committee, California Taxpayer Protection Committee, Alliance of Contra Costa Taxpayers, Contra Costa Taxpayers Association, California State Sheriffs’ Association, California State Automobile Association, California Farm Bureau Federation, Small Business Survival Committee, The Seniors Coalition, 60 Plus Association, and the National Federation of Independent Business.

Accountability Smokescreen

The proponents of Prop 56 contended it would make it easier to pass the state budget, which is often the subject of wee hours-debate and political deal-making. Passing budgets on time, they argued, would ease the financial worries of state programs and employees and would also help improve the state’s credit rating. Moreover, proponents noted, a 55 percent requirement is higher than what is required in 47 other states.

Opponents responded that Prop 56 would have made it easy not only to pass budgets, but to pass tax increases as well. They referred to it as the “blank check initiative” and the “take my wallet, please” initiative. Carol Evans, vice president of the California Taxpayers Association (CTU), warned, “giving even more money to the same people who’ve spent us into a deficit already, by making it easier for politicians to raise our taxes–that’s like giving an alcoholic free run of the bar.”

While it may be a good thing to get state budgets passed on time, opponents argued, budgets with tax increases are not a good thing.

“The proponents are running misleading ads–talking about accountability and on-time budgets–but voters must know that Proposition 56 is a very deceptive measure,” said Jim Goodwin, president and CEO of the Chico Chamber of Commerce.

“It pretends to hold the politicians accountable, when it actually rewards them with an open-ended blank check,” charged Goodwin. “It would give them a free hand to increase our sales taxes, income taxes, property taxes, and other state taxes, year after year, without justification or any bipartisan consensus.”

Tod Kimmelshue, board member of the California Farm Bureau Federation, joined Goodwin. “People in this region know that agriculture operates on a tight margin,” said Kimmelshue. “These days, we compete with each other, with other parts of the state, with other states, and even with other countries. And what’s true for agriculture is true for many other businesses around the state.

“Do we really want to make it easier for Sacramento politicians to raise our taxes?” asked Kimmelshue. “The answer from agriculture and small business today is No. We need real accountability in Sacramento, and Prop. 56 doesn’t deliver it.”

Groundswell in Opposition

Even before the final vote, state surveys indicated Prop 56 was in trouble. In a late January poll released by the Public Policy Institute of California, 73 percent of likely voters said it is a good idea to require a two-thirds vote to pass the budget. “It’s not that Californians have been stingy when it comes to paying taxes,” said the CTU’s Evans. “State taxpayers are already ponying up to the tune of $130 billion in state and local taxes each year.”

Lew Uhler, president of the Roseville, California-based National Tax Limitation Committee, told a rally just before election day, “Prop. 56 pretends to discipline politicians with one hand, but instead rewards them with an open-ended blank check to increase taxes year after year.

“Make no mistake,” Uhler warned, “that’s the real aim of Prop. 56, and that’s exactly what we’ll get if Prop. 56 passes: higher income taxes, sales taxes, and property taxes.”

Two-thirds of the state’s voters apparently heard that message, loud and clear.

John Skorburg is managing editor of Budget & Tax News. His email address is [email protected].