Proposition 3 is one of five – five! – tax-related measures on the Nov. 3 statewide ballot. And it would be perfectly understandable if voters decided to protest this glut of complicated, consequential measures by marking their ballots no for the whole flipping lot. But if any of them deserves to be spared from oblivion, it is this one.
That’s because if Proposition 3 does not pass on Nov. 3, the tech billionaires currently shaping our future (and possibly ending it, with AI!) will get a hefty tax cut starting in 2031, blowing a $10-billion hole in California’s general fund.
I don’t know yet how I am voting on Proposition 40, the so-called billionaire tax. But I do know I cannot abide the idea of giving the top 2% of Californians a tax break they don’t need at a time when the state is facing an uncertain future thanks to federal spending cuts.
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Proposition 3 would make permanent a slightly higher income tax on high earners (people whose annual taxable income is above $371,000) in place since voters passed Proposition 30 in 2012.
Proposition 30 was intended as a stopgap measure to help the state recover from the fiscal effects of the Great Recession. Meanwhile, then-Gov. Jerry Brown began a major reform of public safety services – a “realignment” – that pushed the responsibility for low-level offenders onto counties.
“The thought was the realignment was going to stabilize the state budget enough that within a certain number of years of the initial tax, everything would be stable and you wouldn't need it anymore,” said Karen Getman, an attorney who has worked with the California Teachers Association for more than three decades. CTA is one of the chief proponents of Proposition 3. State law requires that 40% of general fund revenues go to education, meaning any significant reduction in funding would be a fiscal emergency for the state’s public schools.
Golden State staff
But the state’s revenue picture didn’t stabilize by 2016, when voters approved a 12-year extension of the higher income tax rates. And it still hasn’t in 2026. The state’s dependence on revenue from income taxes, most of which comes from high earners already, makes this nigh impossible. Last year, for example, the state was staring down an estimated $12.6-billion deficit. By this year, an unexpected windfall due to a strong stock market and the AI boom closed the gap with some money left over to help cover costs next year.
David Kline with the California Taxpayers Association, which opposes Proposition 3, makes a good point that California’s volatile financial picture is precisely due to the fact that it depends heavily on the incomes of high earners. Making this tax rate permanent wouldn’t necessarily improve stability, but it would surely solidify the state’s heavy-tax-burden reputation. Better to allow the tax to expire as voters expected, he said.
The opponents of Proposition 3 have latched onto one of the arguments that those fighting the billionaire tax are making: that higher taxes will cause high earners to leave. That argument seems plausible when it comes to Proposition 40’s 5% wealth tax, but it seems unlikely to affect an existing income tax rate.
Dan Morain
“We've been living with this one for 14 years, and it clearly has not hurt California's economy, and it clearly has not caused people to flee,” Getman said.
Increasingly, studies are finding that the fear of chasing away rich residents is overblown. Stanford sociology professor Cristobal Young dug into census data and found that millionaires don’t flee higher taxes in large part because their location is key to their success. He wrote an entire book on the subject, which is worth reading if you are still on the fence about Proposition 40. That one is tough. But for me Proposition 3 is an easy yes.
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