Explaining Southern California's economy

Did Californians vote against self-interest on Props 30, 33, and 38?

Prop 30 and 38

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A voter walks from the polling place inside Fire Station 38 in Pasadena, California. Did he vote for against his economic self-interest on Props. 30 and 33?

Did California voters make a choice against their self-interest in voting on Propositions 30 and 33.

From an economic standpoint, you could say yes.

And no.

And maybe.

Prop 30, Gov. Brown's tax-increase initiative, passed, while Molly Munger's Prop 38 failed. The big difference between the two was that Prop. 30 will increase taxes on Californians making more than $250,000 per year (for seven years) and add a quarter of a cent to the state sales tax (for four years), while Munger's plan would have raised taxes on pretty much everybody for 12 years. 

In passing 30 and voting down 38, Californians said that they're OK with a temporary tax increase on consumption and a tax hike on the wealthy, but not okay with an across-the-board tax increase on income. So they voted in their self-interest on income taxes (as long as they aren't making over $250,000 a year), but against it on the sales tax, which will rise to 7.5 percent from the current state base of 7.25 percent.

That wasn't a terribly tough call for most Californians, given that the sales tax increase is only estimated to cost the average person $30 more a year, while millionaires would see their tax rate rise to more than 13 percent.

But this is where the maybe comes in. Munger's Prop. 38 spread the pain around. But while both measures sought to address the same core issue — $6 billion in potential budget cuts to schools — Brown's Prop. 30 focused on the incomes of the wealthy, which in California, are both an increasingly important source of revenues and an increasingly volatile source of revenue. So most Californians decided not to tax their own incomes more, but they doubled down on taxing the rich.

That could work out fine if the rich keep getting richer. But a recession in the next few years could undermine that revenue, because a lot of the income of the wealthy come not from working, but from capital gains. And that's why estimates for how much Prop. 30 would actually bring in vary from nearly $7 billion to $9 billion. You never know when you're going to run smack into another Facebook, whose biffed IPO has cost employees who are now selling stock literally millions — millions that California can't tax.

Prop. 33 — a measure to discount auto insurance rates for currently insured drivers if they switch insurance companies, funded by a discount auto insurance company billionaire — also looks like Californians voting against their self-interest. Drivers in California can't drive without insurance. Insurance companies, in a competitive market, will offer discounts to customers who stick with them. Prop. 33 would have made those discounts transferrable — something that in theory would lower the cost of insurance for insured drivers.

That's a no brainer, right? So why did voters vote it down? That's another maybe, in terms if voters voting against their self-interest. They probably didn't like that this was the second time that Mercury General Insurance Chairman George Joseph tried to get a 25-year-old ballot proposition modified for the second time to benefit his own business, raising the awkward prospect that the 91-year-old may figure that the third time's the charm.

But apart from the idea that new, insured drivers shouldn't necessarily have a market advantage over uninsured drivers, voters who rejected Prop. 33 may have accepted the argument that the discounts Prop. 33 might have given them would have to made back by insurance companies someplace else and that there wouldn't be enough new drivers coming into the system to subsidize the extra competition.

Overall, it seems that on Props. 30, 33, and 38, California voters thought through the economics carefully. What they may not have thought through, where 30 and 38 were concerned, is why we continue to be forced in the state to address major budget issues that can be traced back to Prop. 13, the 1970s measure that capped property taxes and put us on this road to have continual income tax battles at the ballot box. More on that later today...

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