California Ballot Measures | What Voters Can and Can't Hold Them To

There are newer taxes coming in California ballot this year and these measures are getting very creative from CEO tax to different kinds of taxes. At the same time 70% of Californians think they're paying too much on taxes according to a new PPIC survey. Today we sit down with Matt Kling to find out what's coming on on the ballot and a way for us to analyze them as citizens voting. If you're a renter, if the taxes go into effect as an owner, you're going to raise your rent to accommodate the threat of that tax. That's the ultimate irony here is that you have politicians talk about affordability yet they pass or they attempt to pass measures that make California less affordable for the people who are struggling. I'm Siamak, welcome to California Insider. Matt, it's great to have you on, welcome. Thank you, thank you for having me. We want to talk to you about some taxes and some ballot initiatives that are coming down the pipe in this election in June and also in November in California, different counties and you've been watching this for a while especially in LA. Can you tell us what you're seeing? Absolutely, again thank you for having me. So the Los Angeles County Board of Supervisors which represents all 88 cities in Los Angeles County, they put a half cent sales tax on the ballot. It's called Measure ER. It was put on to fund health care and the reason that the four supervisors who voted yes said they need it is because of cuts from the Trump administration for health care in the county of Los Angeles. This is highly problematic for a couple of different reasons. The worst thing about it is that most voters in Los Angeles County, they know nothing about it. So half cent, how does that work? It's going to take the sales taxes over 10%? Because when you think about half cent is like nothing, right? But does that translate to a percentage? It does, it's a big deal. Los Angeles right now has an average sales tax of around 10 and a half percent already. So add a half cent to that number and it pushes cities up. So for example, 40 cities in LA County, if Measure ER passes, will have a tax rate of over 11%. 11 cities will have a tax rate of over 11 and a quarter percent and two cities, Palmdale being one of them and I think it's Antelope Valley is the other one, they'll have a tax rate of 11.75%. On everything that you purchase. That's a lot of money. Yeah, if you're buying a carton of eggs, okay, it's not that significant. But if you go to the grocery store and you spend $100, that's $11 in taxes that you're paying. That's a huge number. Meanwhile, if you go to other counties, so for example, if you go to Riverside County or San Bernardino County or Ventura County or Orange County, the average tax rate is roughly 7.25 to 7.75. That is a 4% difference in tax. That's a huge difference. So again, if you're buying a carton of eggs or you're buying a pack of diapers or a six pack of soda, it's not a big deal. But if you go grocery shopping and you buy for a family of four, it adds up over time. The sad part is that what four of the five LA County supervisors don't realize is I can drive to Orange County to get my groceries and save that 4%. And I say $100, if you're buying groceries for a family of four, your weekly grocery bill is probably a couple hundred bucks. Or I could drive to Ventura County or I could drive to San Bernardino County. Right now, the world is changing as some economies are decoupling from each other. If you're one of those people who have worked very hard to build wealth for your family and for your retirement, this message is for you. Because this is a time that inflation could come into play significantly. 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So, you can't go out and look for a cheaper. But you can go out of state and you can get a car out of state and pay a lot less in sales tax. It's a problem though. Let's take new cars, for example. If you do buy a new car in Los Angeles County, now you're paying that tax. That's something that you look at and say, well, maybe I won't do that right now. Or maybe I'll buy a less expensive used car. It changes your decision-making. And there's that old economic principle, you can't get around it, that if you want less of something, raise taxes on it. So, you will get less purchasing in Los Angeles County because of this tax increase. Does this tax, because this is put on by this board of supervisors, is it requiring two-thirds of the votes to pass? That's the proverbial million-dollar question that I think that every taxpayer should be asking. And this is where the supervisors are playing fast and loose. So, a general tax, meaning that the money goes into the general fund, can be used for any purpose. That is a 50% plus one vote. Under the California constitution, a specific tax, meaning the money is designated for a specific purpose, you need a two-thirds vote. But the California Supreme Court has found some exceptions to that. And one of them is, so what the supervisors have done is, this is really a general tax because the measure, measure ER, is 50% plus one vote. And what the supervisors are saying, trust us, we'll put the money to healthcare. However, they're under no legal obligation to do it. So, if it's a general one, then they can get 50%, 50% plus one works, even if it's proposed by the supervisors. Correct. But, and that because it's a general tax, the money goes into the general fund to be spent on the political priorities that the supervisors have. The other side of this was that we had heard that if citizens put it on the ballot, then they need only 50%. That's what's known as the Upland loophole. And yes, that will hopefully be corrected in a ballot measure that's on the ballot this November. The signatures have been submitted already for that. That will correct. This is that, so the California Supreme Court made that ruling that if a citizen puts a specific tax on the ballot or a citizen's group, that it only requires 50% plus one vote. That goes against the intent of Prop, I think it's Prop 13 or Prop 218, that a specific tax, irrespective of who puts it on, requires a two-thirds vote. So there will be an initiative in November to correct that. But what the county of LA did, even if you support the use of the Upland loophole, what the county did, it's classic bait and switch. They're saying, we only need 50% and trust us, the money will go to where we say it's going to go. And they don't have to do that. They're under no legal obligation to do that. There are other taxes coming down. There's also people collecting signature for a CEO tax. There are actually quite a few taxes there. And so what's interesting is, probably way too in the weeds, so I'll give you a cliff note version of it. A local labor union in the city of Los Angeles, they were fighting against the hotel owners and restaurateurs fighting a hotel minimum wage issue that would raise the minimum wage in hotels. So the Los Angeles city council approved that. Then some business groups said, we don't agree with that. We're going to take this to the ballot and referendize it, meaning try to overturn it with the vote of the people. They didn't move forward with that. They didn't get the requisite number of signatures. In the meantime, Unite Here said, well, we're going to introduce measures for a citywide $30 minimum wage. We're going to introduce a CEO tax. We're going to introduce a tax on big developments or a vote of the people on big developments and another tax. So there is likely on the November ballot, there will be a measure that taxes chief executive officers and then the companies if the spread between the lowest paying worker and the CEO is a certain level. And they're also talking about doing that at the state level. So obviously that's another one. I will tell you that we used to talk in California about the fight for $15, meaning the fight for a $15 minimum wage. They're now talking about a $30 minimum. That's insane. So the person that flips the burgers at McDonald's will be paid $30 an hour or the person that works at the Starbucks that pours your coffee will be paid $30 an hour. Which could impact the cost of all these things, right? Absolutely. I mean, we saw that in California for restaurant workers, they raised the minimum wage. The fast food workers. The fast food workers. Correct. Thank you. A couple of things happen and this is not me just spouting propaganda. There have been studies that show it. One, that restaurants or fast food workers, the number of employees are down, that they're relying more on automation because you don't have to pay an automated machine terminal a minimum wage. And things cost more. So because they cost more, people are buying less of them. We raised the minimum wage for fast food workers. Yeah. At the expense of people who lose their jobs because they're now too expensive to get employed and food costs more. So that's the challenge. Are there any more that you have seen that are coming? There are several. When Jerry Brown was governor, and this will make the point about LA County as well. Governor Brown said that they wanted to pass a temporary sales tax on high income Californians. Temporary. I mean, it's supposed to end. Well, the legislature has extended it once because guess what? They get addicted to- Is it an income tax? Correct. They get addicted to the money. And now they're talking about making the temporary tax, making it permanent. That was the billionaire tax or the people that are making one million? It says on high income. It's people that make over one million. Yeah. This isn't even the billionaire's tax. That's a wealth tax. No. So Governor Brown raised the income tax on people, on high income Californians temporarily to help the state close a budget gap. The legislature then passed and Governor Newsom signed an extension to that temporary tax. And you'll notice my use of air quotes because they needed the revenue. Now the legislature is going to come back and they're going to make that temporary tax permanent. So how does that translate back to the Los Angeles County Measure ER? Well, the County Board of Supervisors have said that it's only a five-year temporary tax to make up for the loss of money from the federal government. Well, government typically gets addicted to the money and temporary becomes permanent as we're seeing in California. So you're concerned that these measures are going to be- Are going to be permanent. So that's one that's on the ballot. The second is what's called the billionaire tax. But what people who don't subscribe to that, it's a wealth tax. So for the first time ever, the government would not look at what you or I make in one year. They would look at how much you have accumulated. So your investments, whether it's in the stock market or real estate, and they would tax it. Now they say it's only for people making a billion dollars or more. I will point out- Having a billion, yeah. Correct. I will point out though that if you go back to 1917 when the US first instituted an income tax, the income tax was implemented for people at wealth over a certain level only. And guess what happens? It's not a new story. Government gets addicted to the revenue and they expand programs and then they need that revenue in perpetuity. So if the billionaire wealth tax does pass, don't be surprised if you see successive tax measures that lower that income threshold so then that everybody is paying on that wealth. So imagine retirement accounts for families that are saving for their future or 529 plans for families that set aside money for kids to go to college. The government will begin to put its hands into those pockets increasingly over time. And the sad part for California is because it's not a federal government tax, you're already seeing the rich move out of California. We're already seeing the middle class move out of California. And the people that are coming in, they're people who are largely dependent upon government services. So you're going to have more people coming in who take from government and less people staying who contribute to the state. Do you think that's going to pass? It's too early to tell. It's polling in the 60s right now. When you run tax measure campaigns, you like to see the yes number high, like in the high 60s to low 70s because as people and voters learn more about tax measures, the support declines over time. So the fact that they're in the high 60s is a promising sign for supporters of that measure. But when you spend $100 million or more highlighting why the measure is bad, that number will likely drop. Do you think people are going to spend a lot of money fighting it? Oh, 100%. They're going to spend hundreds of millions of dollars to fight it. And is there a lot of money on the yes side? I think that the supporters of the yes side believe that they have enough to run a coherent campaign. You know, I know some people that are working on that measure and they are very competent and good at what they do. So it will be a battle royale. I ultimately think that Californians will come to their senses and realize that taxing wealth is a fool's errand and that it will hurt California in the long run. I mean, look, it's very easy to say, don't tax me, tax the rich, except you reach a certain point in government that over time, everybody has money that government wants. And that threshold gets lower and lower. And I think that that's what people will fear, but that's why it's going to take, you know, at least $100 million to convince Californians that this is a bad idea and needs to be defeated. In terms of other taxes that are coming down, there is a transfer tax that is getting proposed in San Diego and in Sacramento, right? Exactly. And look, real estate transfer taxes are largely taxes that few people understand. And the people that push them, they're usually like, you know, affordable housing advocates and people that want to give extra money to the homeless. And they say these fancy arguments, for example, like it's a tiny tax paid by the super rich. That's the argument, in fact, they use on Measure ULA in Los Angeles that passed 58 to 42. And I will say I was involved in running the no campaign for Measure ULA and we got beaten badly. Ironically though, everything that we said would happen with Measure ULA came to pass. You've seen fewer property sales. So with fewer property sales above that, you know, $5 and $10 million cost threshold, fewer property sales equal fewer transfer taxes. So the proponents of the measure said that it would make a billion dollars a year. It made less than a third of that. So when other cities like San Diego or Sacramento consider these, they have to realize that the promises don't meet up with the reality of what's happening. And the proponents of these say, oh, it only targets rich homeowners. Most apartments in the city of Los Angeles are, you know, owner occupied, you know, two to four unit building. That's over that threshold. So you completely destroy that market. And then you look at if you're a renter, if the taxes go into effect, you're going to, as an owner, you're going to raise your rent to accommodate the threat of that tax. So that's the ultimate irony here is that you have politicians talk about affordability, yet they pass or they attempt to pass measures that make California less affordable for the people who are struggling. We have another exciting event in April with Yanni Ekelec, who's the senior editor at Epoch Times. He wrote a book called Killed to Order. He's exposing what's going on in China with organ harvesting. And he's here to tell us about the book. We're going to have one event in our studio in Irvine and another one in San Diego. We're going to leave you a link so you can sign up. We'll see you then. Now let's go see the rest of the episode. We had a discussion with Matt Smith from UCLA who had studied the impact. There's another side effect of this that when transactions go down, because of Prop 13, what happens is when people sell a property, all of a sudden the county and the state, the property taxes will go up. Some property that was on paper for taxes was worth $200,000. The county and the state was collecting only a $200,000 tax base. Now it gets sold for $3 million. The tax base goes up. So there's an element of that that's getting lost too because of this measure, ULA. Exactly. And so ULA is a case study in overly optimistic projections, not reflecting how frankly, again, I hate to say I told you so, how real world economics work. If you raise taxes on something, you get less of it. So if fewer, as you just pointed out, and what the UCLA study and that my friend Matt Smith pointed out, that if properties are not selling, the county then can't take that new tax revenue. So actually measure ULA is costing the county money. Do you think this measure ULA would get changed? Because there was efforts to change it. There have been. So Mayor Bass, as I said, tried to do this in Sacramento. They tried to do it really quickly and it failed. The mayor has subsequently come out and said, well, we'll exempt the Palisades from it. Basically they're acknowledging that ULA is not working. Government is so wed to even the prospect of added revenue that they want to tinker with it temporarily so that the people in the Palisades who lost their homes, they wouldn't be hurt by the higher transfer tax rates. But then after a set amount of time, they would kick back in. So frankly, what they should do is they should repeal it. But that requires that the people who passed it will acknowledge that the concept failed. And so I don't think that that's ultimately going to happen. And that's hard for people to acknowledge in politics these days that something was wrong. That the geniuses that designed a better mousetrap, that the truly sad part though, is time and again, politicians have put ballot measures on the ballot to help with the homelessness issue in Southern California. And the voters have been very generous. They've said, this is a huge problem. We will tax ourselves more, but the problem has to get better. Guess what? The problem's not getting better. We've spent how many billions of dollars? Yes, the mayor will say, oh, homelessness is down. It's a flawed metrics of counting people and the county and the city don't talk. So you have two different groups saying that it's down, but you ask them to measure where the money has been spent, talk about improved outcomes, talk about specific numbers, and there's no consensus. And at a certain point, I would hope that the taxpayers say, we're more than willing and generous to give you this money, but prove to me that it's working. I mean, drive down any street in the city and county of Los Angeles. The problem's not better. Skid Row is as bad as it's ever been. Go to the beach in Santa Monica and you're literally fighting off the homeless with a stick because people want to live on the beach. Well, I would like to live on Rodeo Drive. It doesn't mean I can pitch a tent on Rodeo Drive. Looking at Measure ULA, what's interesting is it's very easy to study that because you can see the transactions in the county versus the city. Correct. And there's a big discrepancy showing that there's a lot more transaction in county. In the city, there's not as much. That discrepancy is because ULA increased taxes on properties over 5 and over 10 million, and the rest of the county of Los Angeles doesn't have that tax. So guess what? Properties in the other parts of the county are not burdened by that higher tax rate, so they don't have the same issue. Because the transactions are taxed at a normal or a lower rate. It's so interesting that I'm working with a group that I helped create called the Community Taxpayer Coalition that talks about real estate transfer taxes in general across the United States. A number of cities have been promised easy money from these document transfer taxes, and it's not manifesting itself. In fact, one was just defeated in the city of Chicago that is not politically dissimilar to the city of Los Angeles. Don't ever accuse Chicago of being a conservative big city. They have a very, very progressive mayor, and they defeated it. One, they ran a better campaign than I ran against measure ULA. But two, there is now more and more evidence that these document transfer taxes just don't work. And I think that that's what the proof is in the pudding, is now we can show people, you know, here's what they say. Let me give you four examples of where it hasn't worked. There is a vacancy tax that's coming in San Diego. The city of Los Angeles has considered this as well. And what they say that, you know, we have a housing shortage. So if your property is vacant, that we're going to tax you because your private property is like eight to 10K a year or something like that. Yeah. Now, mind you, they also bring in commercial property to it. So if I have a retail store that is sitting vacant, I'm going to pay a tax for that. So it's municipal elected officials or staffers. They see a way to raise more money to fund affordable housing or whatever. The problem is, is that when government gets involved with affordable housing, the only thing that happened is that affordable housing becomes less affordable and you get more homeless people. It's positioned as a quick fix, but the proof never merits out. For people to look at these objectively, do you have any recommendations for them, you know, in terms of which ones they should look in their city and county to see if justified? There are certain cases where the city really needs the money. And so, for example, we had one ballot measure for a small city in our area, which they needed to replenish the sand on their beaches. It was the city of San Clemente. Yes. And they passed it. Residents were willing to pay a specific cause. And how would you go about evaluating these measures? The first thing I think is most important is you have to know that the measure is even on the ballot to be, you know, from a taxpayer perspective. And then once you find out that something is on the ballot, you have to do your research. So if a city puts a measure on the ballot, they are not allowed to advocate for or against a tax measure or frankly for anything. They have to provide you with allegedly neutral information. I would then take that information, but take it with a grain of salt because a city is never going to talk about the bad things that could occur from a potential tax increase. So you have to do a little bit of research into it. There will usually be a no campaign that's formed. So for the city of Los Angeles's half-cent sales tax, there is a no campaign that, you know, we wrote a ballot argument against that sales tax increase. But you just have to do your research. I would say read the newspaper is another good way of looking for information. And I always look to see who is supporting it and who is opposing it. So code words for taxes, if a lot of unions support tax increases, it usually means that there's a government funding aspect to it and the unions will either get more union people working it or they will get higher wages because of it. For something like what you mentioned in the city of San Clemente, that is a perfectly rational excuse or reason why taxes should be raised. The beach in San Clemente is what makes San Clemente so important. And, you know, if you can't go to the beach because there's no sand, you lose a part of what makes San Clemente San Clemente. But let me give you a for instance. So what we haven't talked about. So in November, the fire department or the fire department union is putting a sales tax measure on the ballot in the city of Los Angeles so that the fire department gets more money. Very noble tax, right? Especially with what's going on. They didn't have enough resources. Yeah. Okay. But look at it this way. So you're telling me that the city of Los Angeles, with almost a billion dollar a year budget, that they, in spite of what happened in the Palisades, that everything that they're currently funding in the city of Los Angeles is so vital that they can't get more money to fund the fire department. So they have to, the fire department has to put a new tax on the ballot and I have to reach into my pocket to pay more so that the city of Los Angeles can continue to not fix my roads, continue to not do the things that they are supposed to be doing. So it's a tough one. I support the fire department. They do work that we need that they didn't do in the Palisades, largely not because of their own doing, but the city wants to raise taxes now. I just don't get it. There's a fundamental disconnect. And the problem is that a lot of voters, they hear it and they say, oh, the fire department should have more money. Well, they should have more money under the city's existing budget. The city funds a lot of stuff that they don't need to fund, that politically it's progressive and it's the right thing to do, according to the politicians. How can funding the fire department not be at the, if not the top, the very top? The city also argues about funding more police officers. Nithya Raman voted against Mayor Bass's proposal to provide 170 new police officers. The city of Los Angeles should have 10,000 cops on the street. They're not even close to that. So, I mean, again, government has a prioritization problem and their solution is never, let's rethink what we do. It's, well, we'll just tax people more to get more money. And in LA County right now, as I highlighted earlier, when the average LA County tax rate, if Measure ER passes, is 10.5% and San Bernardino is 7.5% or 7.5% and Ventura is that, we're not getting 3% better service in the city or county of Los Angeles, but we're certainly paying a lot. Matt, for people that want to dive into these measures, is there any specific language that you look for to make sure that these funds are going specifically to a cause? When a politician, like, and I'll use Measure ER in LA County, when four of the county supervisors say that the money from this tax will be used to fund healthcare, the question that every taxpayer should ask is, will it really? And in the county of LA's instance, no, there's nothing. They can tell you, yes, of course, we're going to use this money to fund healthcare. But legally, they are not. Legally, what does the black and white letters of that proposal say? Unless they are legally obligated to do it, political priorities change all the time. Next year, something may happen and they may say, we have to fund roads or we have to fund something else, another priority. We have to build a new prison or whatever. Guess what? They could take that money and they could put it toward that. Citizens may say, hey, wait, you told us that that money was going to go for this, but now you're using it. But there's no legal obligation. Exactly. And the board of supervisors can say, yeah, we're sorry, our priorities changed. And government's priorities change all the time. What should people look for to see that legal obligation? Well, a specific tax, which requires a two-thirds vote should be used. There should be- It will be a direct cause. It would be direct, yeah. So it's like- In the language of the- In the language of the measure. So any promises of- So if it goes to the general funds, then it's kind of vague. You can be used for anything. It's fishy. Yeah, it's vague. There's no legal requirement. Again, politicians. So they will tell you what they hope to do, but they will only do what they are legally obligated to do. Matt Clint, political consultant. It was great to have you on California Insider. Thank you again for having me anytime. There's always a lot to talk about. We're going to be watching these measures closely. Excellent. What do you Californians think of local taxes and initiatives coming on the ballot? You can always email us at ciamac.californiansider.com or comment. We read all of your emails and comments. I'm Ciamak Khorrami. This is California Insider. We'll see you next time.