Did health care 'tax' just blow up California's careful budget plans?

California Governor Jerry Brown's plans to raise state taxes on the wealthy could be derailed because of voter concern about President Obama's plan to boost taxes on the wealthy and the Supreme Court's labeling the health care reform law a tax.

Californians may be choking on the “t” word.

As a result, California Governor Jerry Brown’s November tax initiative – upon which his just-signed state budget depends – is more iffy than ever, say a host of analysts.

President Obama said Monday he wants higher taxes for the rich. California's small business owners also are worried about the financial hit they will take from the mandate of providing health-care insurance for their employees. Obama's Affordable Care Act is now, thanks to the Supreme Court, officially being called a "tax.”

Governor Brown's plan would raise the state sales tax and the income tax for individuals with incomes over $250,000 a year, with the money going to the state budget, schools, and public safety. His tax initiative would raise an estimated $8.5 billion in this fiscal year.

If the initiative fails, Brown's budget plan has a trigger to automatically cut $4.8 billion from education. Political scientist Dan Schnur told Bloomberg News that this trigger was "the most expensive ransom note in California political history."  But Brown denies that he is trying to strong arm voters.

“The stars seem to be aligning against the passage of Brown’s November tax initiative,” says Jack Pitney, professor of government at Claremont McKenna College.

Others point out Brown’s isn’t the only tax idea on the ballot, and will suffer as a result. 

"Californians face a crowded ballot in November ... with competing tax measures, concerns about their own pocketbooks, and numerous initiative battles," says David McCuan, professor of political science at Sonoma State University. “Passing anything is going to be tough,” he says.

According to California figures and the US Census, there are about 355,000 California households in the $250,000-and-higher income bracket. In a state with a cost of living as high as California's, that begs the question of who is bearing the brunt of the tax increase. It also strengthens presidential challenger Mitt Romney’s argument that “the last thing we need to do in this economy is raise taxes on anyone.”

“I actually think this does [jeopardize Brown’s November tax initiative],” says Tony Quinn, co-editor of the California Target Book, a nonpartisan guide that tracks state political races.  “Brown’s allies in the legislature saw to it that his tax measure comes first on the ballot measure ballot plus the Obamacare tax, and now Obama’s hit on the rich making more than $250,000 a year. $250,000 may be rich in some states but in high-cost California it is upper middle class. “

Anyone in politics developing messages about all these campaigns is going to have to be very careful and crafty, say other analysts.

“Obama was doing all he could to not call his health-care penalty a tax, so whoever is trying to sell these ideas is going to have to work very hard to recast their messages,” says Barbara O’Connor, director emeritus of the Institute for Study of Politics and Media at California State University, Sacramento.

“This is particularly onerous right now in California because so much of the budget is dependent on voters coming through with about $8 billion.”

Also vying for voter attention in November is a competing plan which would raise income taxes for nearly all Californians, with most of the money going to public schools.

A recent Field Poll found 54 percent of respondents in favor of Brown's tax measure and 38 percent opposed. Voters were evenly split at 46 percent on the other initiative.

Mr. McCuan says Brown's tax measure will require support and backing of unions who will be otherwise engaged.

“Unions will be preoccupied with a battle against them over paycheck protection and possibly any pension battles that result,” says McCuan. “Wrap this all up, and Brown is going to have to raise a ton of money while seeking support and not threatening voters that California will fall into the sea if his ballot measure is unsuccessful.  That's a tough job for anyone.”

Mr. Pitney says there is another reason Californians will be balking. The state legislature last week officially green lighted the state’s $100 billion, high-speed-rail project, despite the objections of two blue-ribbon investigating commissions, an independent state analyst calling it too expensive, and several polls saying the public is strongly against it.

Noting that California voters just rejected a much narrower tobacco tax in June, Pitney says Brown’s political maneuvering space has shrunk because of all the tax talk.

“The passage of the high-speed rail project which Brown vociferously fought for and won over all the objections will go down in retrospect as the biggest mistake of his administration,” says Pitney. “He has the environment of all these tax increases as partly to blame.”

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