Tax the rich — sometimes. California voters sent mixed signals with ballot measures

California voters faced big questions about money in this election, and the results sent mixed signals about how the electorate feels about taxation.

They want to tax the rich — but only sometimes. They want the money counters at the Franchise Tax Board to stay far away from personal assets, but are leaving the door open for future taxes or taxes on other people.

On Election Day, voters: 

• Rejected Proposition 40, an effort to levy a first-of-its-kind wealth tax on billionaires
• Rejected Proposition 41, a taxation transparency measure 
• Approved Proposition 42, a ban on wealth taxes and retroactive taxes 
• Rejected Proposition 43, an attempt to make it more difficult for local governments to raise taxes
• Approved Proposition 3, a proposal to make permanent a tax on high-income earners

Voters also approved several high-profile local taxes, including two measures to fund the Bay Area’s regional transit systems, including Muni and BART, and a half-cent sales tax to fund firefighting in the city of Los Angeles.

The mixed outcome, experts say, shows that California voters are embracing tax hikes — but only when they can ensure the money is funding tangible services they support.

“Voters are willing to open up their wallet if they believe it’s for a good cause … and that it’s actually going to that place,” said Brandon Castillo, a prominent ballot measure strategist in California.

It also demonstrates voters’ willingness to support taxes that likely won’t affect their own pocketbook, said Mark Baldassare, survey director of the nonpartisan Public Policy Institute of California.

“We are a very progressive state where voters, particularly today when affordability weighs on them, have a tendency to say somebody else will be paying taxes, not me.”

Still, that “not me” attitude didn’t stretch as far as the state’s contentious billionaire tax, which faced opposition from business interests, Democrats and deep-pocketed Silicon Valley executives alike.

Why did the billionaire tax fail?

The failure of the billionaire tax represents the most stunning defeat of Election Day for progressive Democrats who tried unsuccessfully to capitalize on souring sentiment toward the ultra-wealthy amid high gas prices and worsening inflation for average Californians. How could the most progressive measure in the most progressive state fail during a “blue wave” election?

“California voters are sometimes more conservative on ballot propositions than they are on voting for candidates,” said Christian Grose, a political science and public policy professor at USC.

In recent years, voters through ballot measures got tougher on crime, shot down a minimum wage increase and rejected efforts to make it easier to pass local bonds. In fact, voters upheld the death penalty the last time it appeared on the ballot even though the state has not executed anyone since 2006. In a historic decision, Gov. Gavin Newsom also earlier this month commuted all death row sentences to life without parole. 

Rob Stutzman, a Republican political consultant, said this trend likely holds true because ballot initiatives — including taxation questions — generally ask voters to consider one issue at a time and are presented in a nonpartisan manner. In contrast, voting for a liberal or conservative candidate requires voters to weigh multiple aspects of a person’s record, character or values.

“They just have the policy question, and voters sort it out for themselves,” Stutzman said.

Those centrist tendencies helped push Prop. 42, one of two measures put on the ballot by billionaires trying to protect their wealth, across the finish line. That measure bans taxes on personal property, business interests and financial investments. The Associated Press confirmed its passage by 51.3% Friday.

Anti-tax and union supporters touted it as a way to protect retirement savings and pensions potentially targeted by the billionaire tax, though billionaire tax proponents countered that their measure never targeted ordinary retirement accounts in the first place.

Experts say voter confusion and a $378 million opposition warchest donated primarily by Silicon Valley tech billionaires doomed the billionaire tax.

Props. 41 and 42 were designed specifically to kill Prop. 40 if it had passed, creating a chaotic array of choices. The billionaire tax also amassed a coalition of diverse and vocal opponents, including Gov. Gavin Newsom, Planned Parenthood, medical clinics and the state’s largest teachers union, despite the California Democratic Party and California Labor Federation supporting it.

Polling showed support for the measure dropped 6 points in the last two months before the election, taking it from a narrow lead to a crushing defeat. 

“The campaign against the billionaire tax was a success,” Grose said.

Other taxes succeeded

But few view the results on Prop. 40 as a referendum on the state’s progressive tax system. Instead, many analysts said it was simply bad policy that splintered California’s Democratic base.

Prop. 40 aimed to focus almost all the revenue in healthcare while cutting out other areas of state spending, which would lose funding if billionaires left the state and stopped paying income taxes, said Thad Kousser, a political science professor at UC San Diego. That, he said, was “an unforced error.” 

“It made it a David and Goliath fight, but it didn’t need to be,” he said. “You don’t pass a landmark progressive tax increase that is sort of a change to how America has historically done anything by dividing up the progressive coalition.”

At the same time, Prop. 42’s anti-taxation sentiment was also somewhat tempered by the defeat of Prop. 43, which would have made increasing taxes for local public services more difficult, and the success of Prop. 3, which sticks a higher tax bracket on high-income earners to help fund schools.

Prop. 43 would have required a two-thirds vote to pass any local tax dedicated to specific services. Kousser said voters are concerned the measure would allow for “minority rule,” where just a third of voters would be able to block essential funding for local services.

“Voters don’t like to put in place these rules that seem to be tilted in one direction,” he said.

David Goldberg, president of the California Teachers Association, said Prop. 3’s passage sent a “resounding message of support for taxing the wealthy.” That measure passed with nearly 59% of the vote and sets a higher tax bracket on individually earned income above $360,000.

People in that income bracket have been paying that extra tax since 2012 as a temporary state budget fix; Prop. 3 made it permanent.

Why could voters distinguish between the income tax Prop. 3 and the wealth tax in Prop. 40? Partly because Prop. 3 had no opposition among Democrats, Kousser noted. It also extended an existing tax, whereas Prop. 40 opponents ran ads claiming that state lawmakers could come after average Californians’ personal savings.

Ballot box tempting for revenue seekers

Dustin Corcoran, chief executive of the California Medical Association, which opposed the billionaire tax, said he also does not view its defeat “as an endorsement of wealth inequality or the status quo.”

The state still needs to find a way to securely finance healthcare, education and other core services, Corcoran said, and the medical association is exploring future ballot initiative options to generate revenue. 

Not even Prop. 40’s supporters view its defeat as a reason to stop trying to tax the ultra-wealthy in California. Dave Regan, president of Service Employees International Union-United Healthcare Workers West, the primary proponents of the billionaire tax, vowed to come back in 2028 with another billionaire tax initiative.

Regan also pushed back on the notion that Democrats were divided on wealth taxes, arguing that polling showed between 60% to 70% of Democrats supported the measure and only Democratic leaders such as Newsom and Gov.-elect Xavier Becerra opposed it. 

“At the very highest levels of state officials there’s actually, you know, a different point of view, but that’s out of step with where regular people are at,” Regan said. 

Still, fiscal conservatives, the state’s non-partisan budget analyst, and even some moderate Democrats say taxation cannot be the only solution to California’s budget woes. The state has faced four consecutive deficit years and spending that outpaces revenue despite the budget as a whole growing. The current state budget calls for $351.7 billion in total spending — a 64% increase over the $214.8 billion Newsom signed in his first year as governor seven years ago.

“California’s budget is structurally overextended despite booming and near-record revenues,” the Legislative Analyst’s Office wrote in a new budget assessment. “This overextended budget reflects a higher ongoing spending base; diminished reserves; an already accumulated wall of debt; and annual, out-year operating deficits of $8 billion to $10 billion.”