Tuesday’s election in California may be almost as important as the national election. Jerry Brown, the Governor, is trying to overcome a fiscal calamity inflicted on his state 34 years ago. More broadly, the troubled condition of state and municipal finances in the United States is potentially worse than the public debt of the federal government itself. And California, with its 35 million people, has great influence across the country.
Mr. Brown is the initiator of Proposition 30, which, if approved by the voters of California, would at least partly compensate for the disastrous Proposition 13 of 1978, passed by referendum and thereby added to the state’s constitution. It so severely constrained property tax in California that numerous municipal government could not adequately perform their most important functions – from garbage collection to schools. As a result, the state government has had to massively subsidize local governments, mostly through income taxes. That in turn has made the state’s own finances unsustainable.
Low tax levels are as a rule desirable, but when the costs of core services can no longer be paid for, things are truly amiss.
It would have been better to take Proposition 13 head-on, but Mr. Brown, with his long experience of Californian politics, may be right not to have an attempted a referendum to repeal, or at least heavily amend it. Instead, he proposes to raise sales tax, and also income tax on households with earnings above $500,000. The emphasis on consumption tax (comparable to the successful Canadian GST and HST) is a good one.
California has already reached the edge of its fiscal cliff. Proposition 30, if passed, as some polls suggest, will be a real credit to the people of the state, and may set a good example elsewhere.