Props 2, 3 and 43: Higher Reserves, Permanent Top Tax Rates and a Two-Thirds Rule for Local Taxes

California’s November ballot asks voters three questions about how much government should hold, how much it should keep and who must agree

Every few years California voters are asked to write a rule about money into the constitution. This November, three of the 14 statewide measures concern fiscal architecture, and each reflects a different instinct about the proper size and discipline of government. GrowSF’s guide to the measures summarises them: Proposition 2 doubles the state rainy day fund cap from 10 to 20 percent of the General Fund and extends mandatory debt paydown; Proposition 3 makes the existing top income tax rates permanent by removing their 2030 expiration date; and Proposition 43 requires two-thirds voter approval for all local special taxes, including those placed on the ballot by citizen initiative.

Proposition 2: A Bigger Cushion

California’s budget swings with capital gains and high incomes, so it surges in good years and plunges in bad ones. A larger rainy day fund is a sensible response to that volatility. Under Proposition 2, the cap on the reserve doubles from 10 to 20 percent of the General Fund, and the requirement to pay down debt is extended. The measure would cover about half of future shortfalls, compared with one-third under current rules, according to the GrowSF analysis. That is short of the 50 percent cap that the Legislative Analyst’s Office recommended.

The libertarian objection is not to saving. It is to the idea that a state that can accumulate a larger reserve will treat it as spendable. Reserves are only valuable if they are protected from the next spending impulse, and the rules about when they can be tapped matter as much as the size. A larger fund with easy withdrawal rules offers less discipline than a smaller one with firm limits.

Why Volatility Matters

Because the state leans on high earners, a market downturn can quickly create a deficit. That is part of the same issue raised by Proposition 40, the billionaire tax, and by the departures of wealthy residents. A reserve can smooth a bad year but cannot replace a structurally narrower revenue base. If the base shrinks, even a large fund will run out.

Proposition 3: Making the Top Rates Permanent

Proposition 3 removes the 2030 expiration date on California’s top income tax rates, which were raised in earlier ballot measures as temporary. Supporters argue that the state needs predictable revenue for schools and health care and that voters have repeatedly shown willingness to pay. Opponents note that California already has the highest top marginal rates in the country, and that temporary taxes have a way of becoming permanent without a vote on the merits.

The deeper question is competitiveness. A high top rate is paid by a small number of people who can change residence, restructure their income or reduce their activity in the state. That is not an argument that rates should be zero. It is an argument that rates should be set with an eye on behaviour. The broader context is documented in the summary of the billionaire tax initiative, including the reported departures of several high-profile residents.

The Sunset as a Discipline

A sunset clause forces a conversation. When the tax is due to expire, legislators and voters must decide whether to renew it and on what terms. Removing the date removes the conversation. If the revenue is as valuable as supporters say, they should be able to win the argument again in 2030. Skipping that step suggests a lack of confidence in the argument.

Proposition 43: A Higher Bar for Local Taxes

Proposition 43 would require two-thirds voter approval for all local special taxes, including those placed on the ballot by citizen initiative. Currently, citizen-initiated special taxes can pass with a simple majority following court decisions, while those proposed by local governments need two-thirds. The measure would close what its supporters call a loophole.

Critics say a two-thirds requirement makes it nearly impossible to raise money for local needs such as transit, parks or housing, and gives a minority a veto. Supporters say that a special tax, which is earmarked for particular purposes, should require broad consensus because it binds future budgets. Both arguments have merit. A taxpayer-protection instinct is entirely consistent with a belief that people should be able to decide through democratic means. The question is the threshold.

How the Measures Interact

Voters should read the three together. Proposition 2 makes the state more resilient. Proposition 3 keeps revenue high. Proposition 43 makes it harder to add new local taxes. A voter who wants fiscal discipline might support the reserve and the two-thirds rule and oppose the permanent rates. A voter who wants stable services might do the opposite. There is no single correct combination, which is why each deserves a separate decision.

What Independent Analysts Say

The Legislative Analyst’s Office publishes fiscal estimates for each measure, and voters should consult them. The analyst’s role is to estimate revenue effects, not to take positions, and the numbers are often less dramatic than campaign materials suggest. When both sides cite large figures, the analyst’s range is usually the safest guide.

British readers know the debate over reserves, rates and thresholds. Our London pages have covered the central bank’s mysterious methods, the Budget and its arithmetic and the pension triple lock. See also our guide to political humour, and for American coverage Bohiney Magazine.

Constitutional rules last longer than the arguments that created them. Read the text before you vote. For lighter reading, NewsBiscuit is one click away.

SOURCE: bohiney.com