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Ronald Reagan Presidential Library
Digital Library Collections
This is a PDF of a folder from our textual collections.
Collection: Reagan, Ronald: Gubernatorial Papers,
1966-74: Press Unit
Folder Title: Issues - Tax Reform
(1 of 5)
Box: P31
To see more digitized collections visit:
https://reaganlibrary.gov/archives/digital-library
To see all Ronald Reagan Presidential Library inventories visit:
https://reaganlibrary.gov/document-collection
Contact a reference archivist at: [email protected]
Citation Guidelines: https://reaganlibrary.gov/citing
National Archives Catalogue: https://catalog.archives.gov/
Taxes
file
TAX DECISIONS - 1969
Werner Z. Hirsch
MR-120
Paper prepared for the California Tax Seminar, sponsored by the
California Taxpayers' Association and Tax Executives Institute,
Sacramento, California, December 10 and 11, 1963. The author
acknowledges with gratitude critical comments by Ronald Teeples
and Phillip Vincent.
C
Institute of Government and Public Affairs, UCIA, 1968
Tax Decisions - 1969
Werner Z. Hirsch*
I.
Contrary to the opinion of some observers, the tax system and
tax structure developed by the State of California to finance State
government activities is reasonably equitable, effective and pro-
ductive. This does not mean that there is no room for improvement.
Replacing a disguised semi-annual income tax withholding system
with an overt monthly income tax withholding system would be a step
in the right direction. Replacing the corporate income tax by a
value-added tax and reducing state-granted property tax exemptions
might also be improvements.
But I doubt that these are the truly significant tax decisions
facing us in California in 1969. Were it not for serious local
government fiscal crises, the State of California would have rela-
tively little to worry about, as far as State taxes are concerned,
mainly because of the great improvements brought about by the
Revenue Act of 1967. In my opinion we can even afford to make
some increases in expenditures for higher education and mental health
care. Except that it did not include a withholding feature, this
Revenue Act was truly forward looking and its architects should be
congratulated.
*
Professor of Economics and Director of the Institute of
Government and Public Affairs, University of California, Los Angeles.
-2-
The agonizing questions that we in California do face in 1969
relate to the malaise of our local governments and their treasuries.
We must reconsider these questions: (1) What services should
local governments perform? (2) What expenditures should be financed
by local governments and by what taxes? (3) How much State aid
should be given to local governments, and in what form?
II.
The fiscal challenges of 1969 are likely to come about less
because State officials have decided to take another look at local
government finance and their role in it, than from the actions that
local officials are likely to take. Specifically, key municipalities
have decided to seek the right to levy income taxes, and possibly
State legislation that would provide for uniform income taxation
throughout the State. The cities are seeking these rights not only
in the California Senate and Assembly but also in the courts. What
makes this decision so important is that if local governments in
California begin to levy progressive income taxes, they will have
become actively engaged, like the State and Federal governments,
in income redistribution. The rates of local governments, added
to those of the State and Federal governments, will create a highly
progressive total rate structure. This is indeed a far-reaching
step, one which, because of its importance should be taken only after
due deliberation and with full understanding of its implications.
To put the issue into proper perspective, we must remember that by
far the most important civilian government users of resources-whether
-3-
manpower or materials-are local governments. In the production
of goods and services, they are much more important than State
and Federal governments, which often delegate actual production
responsibilities to local governments and private industry. Thus
if, for example, we interfere with the efficiency with which local
government activities are performed, we tend to lose a major oppor-
tunity to enhance overall civilian government efficiency.
III.
Let us consider some of the problems faced by local govern-
ments. The fiscal difficulties of local governments are caused
by some factors that are mainly beyond their control-especially
interjurisdictional spillovers of costs and benefits, i.e., services
paid for (or benefitted from) in one jurisdiction but benefitted
from (or paid for) in another-and by other factors that are within
their control but are largely not controlled because of political
considerations. Examples of the latter are tax competition and
voting procedures on taxes and bonds; another is great reliance
on property and sales taxes. Increase in total revenue to govern-
ment from property and sales taxes is less than proportionate to
percentage increases in local income. Thus, expenditure desires
tend to out-strip tax receipts because the income elasticity of
expenditures tends to be greater than the income elasticity of
revenues and the property and sales tax base does not grow as rapid-
ly as do service desires. Also, difficulties are incurred because
such people-oriented services as education are financed through
property-oriented taxes.
-4-
To cope with these difficulties, what type of income taxes
would be most productive in helping local government-payroll
taxes; gross income taxes, which do not allow certain expense
deductions; proportionate net income taxes; or progressive net
income taxes, both of which allow for certain expense deductions?
Payroll taxes are extremely inequitable because they hit mainly
wage earners; gross income taxes, if they are to be properly en-
forced, are expensive to administer, and so are proportionate
net income taxes. Furthermore, none of the three is income
elastic and thus none will help to close, on a continuous basis,
the gap between expenditure desires and tax receipts. Local
progressive net income taxes, particularly if they are levied on
the same base as the State income tax (and perhaps collected by
the State) are easily and inexpensively collected; they are also
income elastic and therefore of the four types of income tax they
are likely to fill best the need of local governments.
But what are the side effects of local progressive net income
taxes, and who should levy them? Let us briefly consider six
criteria by which local progressive net income taxes may be judged:
A. Collection effort: If local progressive income taxes are
easily related to the State tax and collected by the State, the
collection effort is small and inexpensive.
B. Income redistribution: A progressive income tax is related
to people's ability to pay, and therefore redistributes income.
Thus, the imposition of such a tax would involve all three levels
of government in the redistribution of income, yet possibly without
much coordination.
-5-
C. Resource allocation efficiency: For the sake of resource
allocation efficiency local governments should rely on benefit
taxation and should determine tax and expenditure items by margin-
al cost pricing criteria. Thus, resources are most efficiently
allocated by governments if the market mechanism can be relied
upon, i.e., if user charges can by employed. With the efficiency
objective in mind, the next best taxing techniques are those that
employ the benefit principle effectively; to some extent this
holds for the property tax levied to finance property-related
services, e.g., fire and police protection, refuse collection,
sewage disposal, and street cleaning. Of all the taxes cities
can employ, the progressive net income tax might be among those
least consistent with efficient allocation of resources.
D. Productivity of tax: Because a progressive net income
tax is income elastic, it tends to produce tax yield increases
at a rate that is more rapid than that at which income increases
take place in the locality. As a result, the net income tax
tends to be very productive and to contribute to closing the
perennial expenditure-receipts gap.
E. Location distortion and economic growth: Since the per-
sonal income tax has a highly mobile tax base, i.e., income earners
are extremely mobile, differential income tax levies among commu-
nities are likely to lead to location shifts of population and
retard the economic growth of those communities that heavily rely
on this tax. Thus the person who would face substantially greater
income tax payments in one community would tend to migrate to anoth-
er that offers advantages, possibly outside the State of California.
-6-
F. Tax yield stability: Because of the relatively high
income elasticity of the income tax, its yield tends to be less
stable over the business cycle than, for instance, the yield of
the property tax. Thus, during periods of economic slowdown,
tax receipts will slow down even more rapidly than does business
activity, and with hardly any accompanying decline in service
costs. At the same time, service desires may be constant or
even anti-cyclical. Local tax yield instability is serious,
since unlike the Federal government, local governments can
neither control aggregate economic activity nor easily borrow
funds to balance the budget.
At the moment the major pressure for a local income tax
comes from large cities; however, counties and school districts
also could consider using the progressive net income tax. The
large California counties and school districts in many respects
appear to have more reason to seek income taxes than do city
governments. Thus, for example, to minimize location shifts and
growth retardation-and to minimize inefficiency resulting a)
from people-oriented services presently being financed by property-
oriented taxes and b) from intercommunity spillovers-large
California counties that are responsible for health and welfare
services, as well as California school districts, are more appro-
priate units to levy progressive net income taxes than are cities.
As a matter of fact, to minimize location distortions and in the
hope of minimizing growth-impeding effects, local governments tend
to seek legislation from the State that would impose a uniform
-7-
income tax on local jurisdictions. The local income tax, if it
is made uniform by State legislation, is not dissimilar from a
State income tax. Thus, we have come full circle and the ques-
tion is, why not merely raise the State income tax instead of
going to the bother of instituting local income taxes with all
their complex problems?
-8-
IV.
I am less interested in providing specific recommendations
for 1969 than in pointing to an important decision area and, I hope,
stimulating thoughtful dialogue. Thus I am more interested that the
decision to permit local governments to levy a progressive income
tax be made in full awareness of its ramifications than in op-
posing or endorsing it.
However, if pressed, I would be willing to offer an alter-
native solution.
1. A good case can be made against the levy by local
governments, particularly by cities, of progressive income taxes
and against their joining the Federal and State governments in
redistributing the income of Californians. However, local
governments in California need additional funds; otherwise,
funds will be required from higher levels of government for cer-
tain services that are presently financed locally or the provision
of those services will have to be shifted to higher levels of
government.
There is much merit in seeing to it that health and welfare
service financing be federalized, and there are indications that
Congress and perhaps the Administration are willing to seriously
consider completing moves in this direction. The State of Cali-
fornia might assume greater responsibility in financing education.
To minimize the danger of State aid to school districts (and
other local governments) producing waste and inefficiency, the
State could replace detailed restrictions on categorical grants
-9-
State
based on need, e.g., aid per pupil in average daily attendance,
INTERNAL
with minimum standards of program accomplishment, e.g., average
achievement scores. Since great progress has been made in the
last ten years in measuring service outputs and performance, I
brand
and
don't foresee insurmountable technical difficulties in switching
from the existing restrictions, which are mainly input-oriented, to
output-oriented performance criteria. If such a shift is to take
place, the State should institute a time-phased 5-year program
which would make the transition gradual.
2. To further increase efficiency, the State could induce the
creation of areawide government units to render services which
benefit from areawide scale, e.g., air and water pollution
control, sewage, transportation, public health, water, planning,
hospitals, etc.
3. The State could also induce city and county governments
to rely, whenever feasible, more heavily on user charges, and
in this way could bring about more efficient use of resources.
4. Furthermore, the State could induce small local governments
to consolidate and reduce problems caused by externalities and
in this manner to counteract a tendency to underinvest in local
government services. This would reduce the existing local fiscal
crises.
5. Finally, the State could stimulate those local governments
that use property taxes to shift some of the assessment from
improvements to land. Even if, on the average, property owners
would pay the same amount of property tax, substantially higher
-10-
rates on land values would induce owners of low-use land to
convert to higher value uses. Land speculation would be reduced
and replacement of rundown structures by new ones would be encour-
aged.
I would like to offer a note of caution, however. Because
property taxes have been capitalized in many land values, it
would be unwise to assume that government could reduce property
taxes rapidly or to a large extent. Thus, the transition should
be gradual and basically only small total reductions in property
taxes might be expected; however, ultimately property taxes would
be mainly collected by municipal governments. County governments
would continue to levy property taxes solely to finance property-
oriented services.
Only if we could not visualize greatly increasing Federal
financing of health and welfare services, and State financing of
education services, should we consider relying on local income
taxes, which should then be assigned to county governments and
(or) school districts.
V.
One of the great metropolitan newspapers in the State of
California recently concluded that a need exists "to revamp the
present inequitable state tax structure." I would suggest that at
the top of the agenda for 1969 is effectively helping local govern-
ments in California better serve their citizens efficiently, with-
out continuously facing financial crises. The State can take the
-11-
easy way out and pass enabling legislation permitting cities
to levy an income tax. Such an act will make it even more
difficult for local governments to pursue policies that allo-
cate resources efficiently and will, instead, get them into the
business of redistributing income, a role already played by
State and Federal governments. Local government revenues would
become increasingly unstable over the business cycle. Instead,
State governments could gradually, but substantially, increase
their financial aid to local governments through conditional
grants accompanied by performance standards and the four induce-
ments suggested above and thus could encourage local governments
to be more efficient and effective in servicing their constituents.
The very fact that Proposition 9 was placed on the ballot
in California and millions of Californians voted for it in
November 1968 testifies to the great dissatisfaction with our tax
system. California voters are protesting against our fiscal
system, especially against that of local governments. Leaders
in the executive and legislative branches of government are well
advised to heed this protest and to help California's local
governments into a sounder financial position to serve people
equitably, adequately, and efficiently.
PRESS RELEASE
Department of Finance
FOR RELEASE PM'S THURSDAY, Tax Retorm
Caspar W. Weinberger, Director
October 24, 1968
445-4141
"Proposition 9, one of the most destructive and potentially
dangerous measures to be on the California ballot in many years,
illustrates once again the grave weakness of our initiative laws,'
Caspar W. Weinberger, state director of Finance, said in San Francisco
today.
Speaking to the Society of Municipal Analysts, a national organiza-
tion made up of representatives of the principal underwriters and
purchasers of state and local bonds throughout the United States, in
a meeting in San Francisco, Weinberger said "Only in California could
a measure like the Watson Amendment, Proposition 9, be put on the
ballot for the serious consideration of the voters. Nowhere else
would such a piece of fiscal idiocy even get beyond the talking stage.
"Proposition 9 would effectively destroy local government; it
would vitally weaken, if not end, the State's Water Project, and it
would seriously injure the state's credit for years to come. Worse
than any of these things, is the fact that Proposition 9 is billed
as a 'tax relief measure' when in fact it could only result in a major
and virtually insupportable tax increase for virtually all Californians.
"Proposition 9 would forbid the use of any property taxes for the
support of education, welfare and any other services that might be
added later. It would leave us with the alternative of either closing
the schools and depriving people in need, or trying to find some kind
of substitute tax. Clearly, the latter would have to be the solution.
Clearly, too, the $4.5 billion tax requirement that Proposition 9
would shift to the state government could only be raised by drastically
increasing sales and income taxes. We would have to double the state
income tax and triple the sales tax, or vice versa, to find the amount
of revenue which Proposition 9 would so casually take off the property
tax rolls.
"And who, if anyone, would be the beneficiaries of this fantastic
measure? There can only be one group that would really benefit. That
would be the small group composed of those who own California land in
enormous quantity, but who are not Californians--who live outside the
state. They would have their property taxes cut and they would not
have to pay the doubled state sales and tripled income taxes made
necessary by Proposition 9. This is a pretty small and scarcely
deserving group to be benefitted by a measure which would cost all of
-1-
us vastly increased taxes.
"We are already taxed far too much. The total taxes many
Californians now pay for state, local and federal government is
approaching .35 cents to .38 cents out of every dollar earned.
Proposition 9 would add immeasurably to this burden without benefitt-
ing anyone except that tiny group of non-residents.
"Furthermore, the bonding limitations contained in Proposition 9,
which are among its most serious and least understood features, would
mean, among other things, the crippling of the State's Water Project
and a prohibition against bond financing of schools, hospitals, roads
and public institutions of all kinds in most areas of the state. The
bond provisions of Proposition 9 are so poorly drafted that those who
must give legal opinions of validity before any bonds can be sold are
agreed on only one thing: No one knows exactly what the bonding
limitation features of Proposition 9 really mean.
"The effect of this proposal on the credit of the state and on
our ability to market bonds would be utterly destructive for years to
come.
"And all of this for the benefit of a few out-of-state land
speculators.
"'How,' it will be asked, reasonably enough, , could such a
measure ever be seriously considered by the citizens of the largest
state of the United States?'
"In other parts of the country, people are asking why it is that
California has reverted to its earlier history when such nonsense
measures as the 'Townsend Plan, the 'Ham and Eggs Initiative,
'Thirty Dollars Every Thursday,' and similar nonsense used to appear
regularly on the ballot.
"As a matter of fact, we do not even have to go that far back
to find examples of the kind of proposals that require California's
adult voters to raise hundreds of thousands of dollars to try to defeat
almost every election.
"Right after World War II, a measure that still is fodder for
most governmental textbooks was not only placed on the ballot by the
initiative process, but was passed. This was a Constitutional amend-
ment which literally named a lady named Myrtle Williams as director
of Social Welfare, and added other equally undesirable provisions.
One year and several million dollars later, Myrtle Williams was
repealed by a vote of the people, but a great deal of damage had been
done, and our state was again the laughing stock of much of the rest
of the country.
-2-
"More recently, we have had before us, among others, a measure
sponsored by movie theater owners to ban an equally legitimate, but
competitive business--pay television. This measure also passed-- only
to be declared unconstitutional by the court. And then there was a
proposal which would have turned over the sole and exclusive rights
to run a state lottery to a private corporation which would pay a
nominal fee to the state for this privilege estimated to be worth
hundreds of millions of dollars. This one happened to be defeated.
"Why is it that California seems to be the home of such
'ballotomania'?
"The answer is simple and so is the solution, but unfortunately,
the solution is not one the people are likely to adopt until many
more generations of similar ballot measures are proposed and, after
Herculean struggles, either defeated or repealed after we have had a
short brush with experiencing them.
"Hiram Johnson, who became governor of California at a time when
the legislature was corrupt and totally lacked the confidence of the
people, had what he thought was the answer: 'You take part of the
legislative power, said Hiram Johnson, 'away from the legislature
and give it to the people. You can always trust the people and then
no matter how corrupt the legislature might be, the people will always
have a safeguard.' So he proposed the California Initiative procedure.
Under this plan, when the signatures equalling five percent of the
people who voted in the last gubernatorial election are gathered on
a petition sponsoring a proposed statutory Constitutional amendment,
that measure goes on the ballot for the voters to pass on at the next
election. If a simple majority then votes for the measure, it becomes
part of our Constitution, or statutory law, and can only be modified
or repealed by another vote of the people.
-3-
"Now, in theory, all of this sounds fine. The simple fact
of the matter is, however, that 'the people' do not spontaneously,
or otherwise, decide they want a measure on the ballot. A small
group, such as out-of-state large land speculators, for example,
will decide that they would like to make more of a profit out of
California land at the expense of California's citizens. The will
of the people, as envisioned by Hiram Johnson, has nothing whatever
to do with it. What happens is that the small group goes to a
typical and highly indigenous California product, the professional
signature gatherer. There are two or three of these firms in
California and, given a sufficient amount of money (I believe the
going rate is around 50c a signature), they will absolutely
guarantee to get any kind of a measure, no matter what it may say,
or not say, on the ballot.
"This is because of the peculiar habit of enough Californians
who are willing to sign any piece of paper which is thrust in their
face with a pencil accompanied by the magic words 'Cut your taxes.'
The petition may actually be sponsoring an initiative measure
providing for the immediate execution of former Governor Brown--it
makes no difference what the measure says. Enough signatures can
be obtained, if enough dollars have been contributed to the
professional signature gathering firm, because enough Californians
never read any petition before signing.
"Thus, it is not the will of the people that is served by the
initiative--it is instead the will of any group of people, small or
large, who either have, or can raise, enough money to buy the
signatures to put anything they want on the ballot. Hiram Johnson
may have thought he was solving the problem of a corrupt
Legislature, but what he was doing was hauling out on the stage of
California a bigger and more deadly box than Pandora's. And
regularly, every two years, some group comes along with the key.
-4-
"One simple answer that has been proposed for all this
would at least ensure that the people had more of an idea of what
they were signing when they agreed to authorize an initiative
measure to reach the ballot.
"This would require that initiative petitions could only be
signed at the office, and before an official, of the county clerk
or registrar of voters. This would require the slight effort of
the voter getting himself to the county offices, rather than the
present practice under which signatures are obtained at street
corners, crowded supermarkets and other public places, by
unofficial signature gatherers who may not be too careful about
their descriptions of the initiative measure.
"It would not in any sense interfere with, or limit the right
of the citizen to participate in the legislative process through
the initiative. It would definitely make it more difficult for
small groups, through the expenditure of large sums of money, to
guarantee the presence on the ballot of any measure, no matter what
it might provide. It is a modest proposal which would somewhat
reduce the chances of such permanently destructive measures as
Proposition 9, or its older blood brothers, from reaching the
California ballot and endangering our national credit and reputation
"These things are of far more than academic interest and are
infinitely more serious than they are amusing. If we allow our
national credit to be destroyed, if we do anything which casts
any doubt in the minds of people in other parts of the country
charged with the investment of new private capital that California
is an unsafe or unsound place for them to bring their funds to
invest, we will have crippied our ability to attract the new
business and industry we must have to produce the jobs we need to
take care of the hundreds of thousands of new people coming into
the State every year."
###
-5-
PRESS RELEASE
FOR RELEASE FRIDAY P.Ms. MAY 16, 1969
REMARKS BY CASPAR W. WEINBERGER
California State Director of Finance
Tax Executives Institute
Ahwahnee Hotel, Yosemite
Friday, May 16, 1969, 12:00 noon
"It is no longer accurate to say we are on the verge of a
taxpayers' revolt, State Finance Director Caspar W. Weinberger said
today. "We are right in the middle of a major rebellion by California
taxpayers against all levels of government, and it is a justified revolt.
Weinberger, speaking to the annual meeting of the Tax Executives
Institute at Yosemite today, said that "every major school bond issue
and virtually every tax override proposal has been defeated in the past
few months by voters whose increasing disgust is becoming more manifest
every day.
"Under these circumstances, it is clear that the whole economic
future of California depends to a far greater extent than most people
seem to realize, upon the immediate adoption of a major reform in our
whole State and local tax system.
"The Governor's tax reform program, with two twin goals of
transferring some of the impossibly heavy share of the total burden of
taxation away from the residential property owner, and of improving both
the quality and the equality of our public school system, offers the
first major hope of improvement for Californians in over 30 years.
"Tax reform has to be more than a hope, however. If we are going
to shift some of the burden from residential property owners to a more
elastic and equitable income tax, and to non-residential property, both
of which taxes reflect an ability to pay, it has to be a guaranteed
permanent shift."
Weinberger said that "ever since 1933, Californians have been
promised that higher state taxation either in the form of a sales tax or
an income tax, would automatically mean lowered local property taxes.
Those promises have never been fulfilled. The unique and one of the
best features of the governor's plan is the proposal for a ceiling on
local taxation which would act as a guarantee that our move away from
move such heavy reliance on residential property taxation would be a permane
and not just an invitation for higher local taxation to match
new higher state taxation. This would be accompanied by a provision that the no
the state programs would be required of local government by the state, unless
provided resources for those new programs.
Remarks by Caspar W. Weinberger, Ahwahnee Hotel, Yosemite
"The governor's tax reform program has been offered as a non-
partisan and urgent effort to secure a broader and more equitable method
of shouldering the heavy financial burden imposed by one of the finest
public school systems in the world. For far too long, we have called
upon homeowners to carry far too big a share of that heavy burden by
paying a tax that has little relationship to their ability to pay. When
you couple that fact with a genuine and, in many cases, justified
suspicion that many of our tax dollars are being improvidently used for
too much administration and too little teaching, for too much permissive-
ness and too little emphasis on securing quality education, you have not
only all the ingredients, but many of the reasons for the revolt of our
taxpayers.
"But explanations will not improve the quality of our schools nor
eliminate the causes of the taxpayers' rebellion.
"The Administration's tax reform program, under which the state
would assume 80 percent of the cost of the entire public school system,
and relieve homeowners of half the burden of property tax they now must
bear, offers us the best hope of maintaining, and restoring where
necessary, the quality and equality of our public school system.
"This massive increase in state aid for our public school system
would be accompanied by a removal of all the artificial and highly
complex state mandates and requirements that have hedged about efficient
local control of our schools. There would only be one state requirement
imposed on local school districts, and that would be the necessity,
through the adoption of measurement programs and cost-effectiveness
analyses, for local school districts to assure our citizens that the
vast taxpayer outlay necessary to support our school system was being
spent in a way that produces results, rather than simply resulting in
higher bills each year and increasing public doubts of the quality of the'
system. There have been too many people who argue that all school problems
will be solved simply by adding more tax dollars. Over 80 percent of all
state school aid goes to pay teachers' and administrators' salaries. And
it has not yet been demonstrated that you improve a poor teacher by
paying him a higher salary.
- 2 -
Remarks by Caspar W. Weinberger, Ahwahnee Hotel, Yosemite
"Despite the non-partisan nature of the governor's program, and the
fact that it is designed to solve the most difficult and most urgent
of all problems confronting all state governments today, it is a measure
of the intellectual poverty of the Democratic leader of the Assembly
that he should have immediately, and by his own admission before he had
read the plan, attacked it in the most bitter terms and that he has
continued these irresponsible attacks at the same time he is admitting
that he cannot understand it.
"California's great problems have been solved in the past by a
bi-partisan and responsible approach involving the contributions of men
of good will in both parties. It is fortunate that Mr. Unruh's desperate
desire for political advancement represents only his attitude and not
that of the responsible members of his own party who have demonstrated
a sincere willingness to help improve our creakingly archaic present
system of taxation.
"We have already made very substantial progress in our continuing
campaign to cut the cost of state government. Despite the fact that the
governor and the legislature have effective control of only about a
third of the total budget, we have managed to hold our new budget totals
to a projected increase of less than 4 percent over our spending this
year. We have done this despite increasing pressures caused by inflation
and population increases. We have not stinted in necessary services.
We have increased appropriations for higher education, the public schools
and mental hygiene, and we seek major tax reductions. When it is
realized that other major states such as New York, Illinois and
Pennsylvania are experiencing budget increases in excess of 16 percent,
you can see the measure of these fiscal achievements.
"But unless we can remove the causes of the taxpayers' rebellion by
spreading the remaining burden of taxation more equitably, and
guaranteeing the future quality of our schools, we will no longer be
able to attract the job-producing capital we must have to take care of
a population that is still estimated to increase at the rate of close to
400,000 new people each year. Thus the immediate adoption of major tax
reform is by all odds the most vital and urgent issue that Californians
have faced in at least the last generation."
#####
TAX REFORM
GOVERNOR'S CABINET MEETING
December 9, 1969
TAX REFORM PRESENTATION
Department of Finance
AGENDA
1. Overview of Federal-State Revenue-Expenditure
Patterns
2. Property Tax Reduction -- General Problems
3. Legislative-Executive Task Force Proposals
4. Legislative Resistance to Governor's Program
5. Suggested Modification of Governor's Program
6. Alternative Suggestions
7. Conclusion
TABLE 2
MAJOR TAXES IN CALIFORNIA
(In millions)
% of
Total
for
Type
1966-67
1967-68
1968-69
1968-69
Personal income
and payroll:
Federal
$ 9,690
$10,577
$13,080
State
1,442
1,786
1,943
Total
$11,132
46.0
$12,363
47.7
$15,023
49.7
Property:
State
195
203
221
Local
3,839
4,224
4,686
Total
$ 4,034
16.7
$ 4,427
17.1
$ 4,907
16.2
Corporation
income:
Federal
3,648
3,084
3,956
State
453
577
592
Total
$ 4,101
16.9
$ 3,661
14.1
$ 4,548
15.0
General sales:
State
1,191
1,465
1,652
Local
339
372
394
Total
$ 1,530
6.3
$ 1,837
7.1
$ 2,046
6.8
Selective sales:
Federal
1,598
1,706
1,614
State
1,002
1,087
1,170
Total
$ 2,600
10.7
$ 2,798
10.7
$ 2,784
9.2
All other:
Federal
385
381
391
State
370
392
433
Local
67
82
113
Total
$
822
3.4
$
855
3.3
$ 937
3.1
Grand Total
$24,219
$25,936
$30,245
100.0
See footnotes, Table 1.
Source: Department of Finance
ESTIMATED TAX PAYMENTS AND INCIDENCE
CALIFORNIA PROPERTY TAX, SALES TAX, INCOME TAX
1969-70 FISCAL YEAR
Personal
Property Tax
Sales & Use Tax
Income Tax
Total (3) Taxes
% of
% of
% of
is of
Adjusted Gross Income
Amount
Amount
-
Income
Income
Amount
Income
Amount
Income
Avg.
Under
$2,000
$1,500
$167
11.1
$ 48
3.2
$--
--
$ 215
14.2
2,000
2,999
2,500
185
7.4
66
2.6
--
--
251
10.0
3,000
3,999
3,500
205
5.9
86
2.5
5
0.1
296
8.5
4,000
4,999
4,500
228
5.1
109
2.4
22
0.5
359
8.0
5,000
5,999
5,500
248
4.5
126
2.3
39
0.7
413
7.5
6,000
6,999
6,500
272
4.2
144
2.2
44
0.7
460
7.1
7,000
7,999
7,500
297
4.0
159
2.1
47
0.6
503
6.7
8,000
8,999
8,500
328
3.9
175
2.1
60
0.7
503
6.6
9,000
9,999
9,485
364
3.8
191
2.0
75
0.8
630
6.6
10,000
10,999
10,480
399
3.8
207
2.0
96
0.9
702
6.7
11,000
11,999
11,480
439
3.8
213
1.9
122
1.1
774
6.7
12,000
12,999
12,480
478
3.8
234
1.9
153
1.2
865
6.9
13,000
13,999
13,480
519
3.9
241
1.8
187
1.4
947
7.0
14,000
14,999
14,450
561
3.9
264
1.8
223
1.5
1,048
7.3
15,000
19,999
17,000
634
3.7
282
1.7
334
2.0
1,250
7.4
20,000
24,999
22,100
795
3.6
338
1.5
597
2.7
1,730
7.8
25,000
29,999
27,200
1,005
3.7
348
1.3
938
3.4
2,291
8.4
30,000
39,999
34,500
1,239
3.6
388
1.1
1,492
4.3
3,119
9.0
40,000
49,999
44,500
1,493
3.4
426
1.0
2,370
5.3
4,289
9.6
50,000,
59,999
54,500
1,722
3.2
466
0.9
3,270
6.0
5,458
10.0
60,000
69,999
64,500
1,794
2.8
575
0.9
4,135
6.4
6,504
10.1
70,000
79,999
74,600
2,117
2.8
603
0.8
5,010
6.7
7,730
10.4
80,000
89,999
84,700
3,093
3.7
742
0.9
5,865
6.9
9,697
11.4
90,000
99,999
94,600
3,144
3.3
850
1.0
6,650
7.0
10,644
11.3
Over
100,000
$207,000
$3,465
1.7
$1,250
0.6
$16,060
7.8
$20,775
10.0
0
1967-68
1967-68
1968-69
1967-68
CURRENT EXP.
DISTRICT
DISTRICT
DISTRICT
COUNTY
A.D.A.
PER A.D.A.
TAX RATE
TAX RATE
(1)
(2)
(3)
(4)
(5)
Oro Madre Unif.
Amador
1,200
$ 741
$2.38
$2.6000
Chico Unif.
Butte
9,446
677
3.92
4.6760
Paradise Unif.
Butte
2,499
577
3.24
3.8870
Biggs Unif.
Butte
706,
704
2.87
3.4200
Calaveras Unif.
Calaveras
2,089
712
2.72
2.9700
Colusa Unif.
Colusa
1,303
596
2.74
3.1950
Coalinga Unif.
Fresno
2,932
855
2.03
2.5971
Sanger Unif.
Fresno
6,2,39
549
2.15
3.4838
Princeton Unif.
Glenn
368
891
1.85
1.9290
Calexico Unif.
Imperial
3,936
529
3.06
3,5610
Mar Copa Unif.
Kern
443
1196
2.67
4.2960
Kelseyville Unif.
Lake
617
731
2.89
2.7900
Westwood
Lassen
516
601
3.78
3.3600
Beverly Hills
Los Angeles
5,514
1109
2.00
2.5725
West Covina
Los Angeles
14,174
550
4.00
4.9646
Madera Unif.
Madera
7,994
581
3.33
3.9396
Mariposa
Mariposa
1,125
770
2.87
2,8070
Anderson Valley
Mendocino
422
734
3.09
3.1400
Newman Gustine
Merced
2,495
642
2.81
3.6200
Modoc Tulelake
Modoc
1,999
758
3.30
3.1500
Plumas
Plumas
3,045
715
1.91
2.4300
Elk Grove
Sacramento
8,029
579
3.35
3.8710
Barrego Springs
San Diego
232
1563
3.31
2.7450
Escalon
San Joaquin
1,989
542
2.97
3.5780
San Luis Coastal
San Luis Obispo
7,251
705
4.01
4,5900
La Honda Pescadero
San Mateo
462
1050
4.44
5.1441
Gilroy
Santa Clara
4,739
658
4.22
4.5870
San Lorenzo
Santa Cruz
2,225
684
3.71
4.1950
Fall River
Shasta
1,461
732
2.74
3.3900
Dixon
Solano
1,867
621
2.65
3.4400
Cloverdale
Sonoma
1,375
560
3.42
3.8600
Patterson
Stanislaus
2,069
622
3.02
1.3300
Live Oak
Sutter
1,266
543
2.95
3.3700
Los Molinos
Tehama
570
672
2.65
2.5800
Lindsay
Tulare
2,106
591
3.18
3.7850
Fillmore
Ventura
2,568
664
3.55
14.2600
Esparto
Yolo
814
845
3.76
3.7850
Marysville
Yuba
9m313
528
3.05
3.7900
PERCENTAGE DISTRIBUTION OF SELECTED TAXES
AND OTHER DATA BY COUNTIES
Total
Personal
Bradley-Burns
Property
Personal
Total
Income
Sales Tax
Tax
Income
Population
Taxes
Allocation
Levies
A.D.A.
Counties
1968
7/1/68
1907 Income
1968-69 F.Y.
1960-69
1960-69
Alameda
$5.99
5.35
$5.65
$5.98
$5.80
5.12
Alpine
*
*
*
*
*
*
Amador
.04
.06
.04
.04
.07
.05
Butte
.38
.52
.34
.45
.48
.49
Calaveras
.04
.07
.04
.04
.09
.06
Colusa
.08
.06
.08
.07
.10
.06
Contra Costa
2.46
2.81
3.11
2.22
3.69
3.18
Del Norte
.06
.08
.04
.07
.08
.08
E1 Dorado
.15
.22
.14
.17
.32
.22
Fresno
1.78
2.12
1.43
1.98
1.94
2.48
Glenn
.09
.11
.05
.07
.10
.10
Humboldt
.41
.51
.35
.45
.48
.56
Imperial
.36
.43
.25
.39
.38
.51
Inyo
.06
.08
.07
.08
.10
.08
Kern
1.45
1.71
1.07
1.54
1.88
2.00
Kings
.29
.36
.15
.23
.31
.36
Lake
.07
.10
.04
.07
.12
.07
Lassen
.07
.09
.04
.05
.06
.09
Los Angeles
39.03
35.60
41.91
39.48
35.98
32.91
Madera
.16
.23
.10
.16
.23
.21
Marin
1.15
1.03
1.73
.84
1.25
1.04
Mariposa
.03
.03
.02
.03
.03
.02
Mendocino
.20
.27
.11
.22
.25
.25
Merced
.40
.55
.26
.35
.48
.68
Modoc
.03
.04
.02
.03
.05
.04
Mono
.01
.02
.01
.03
.05
.02
Monterey
1.23
1.24
1.10
.97
1.10
1.20
Napa
.32
.40
.32
.33
.32
.38
Nevada
.09
.13
.07
.10
.11
.10
Orange
6.21
6.75
6.14
6.46
6.17
7.72
Placer
.29
.40
.22
.31
.41
.45
Plumas
.06
.06
.04
.04
.11
.06
Riverside
1.75
2.22
1.38
1.89
2.22
2.31
Sacramento
2.87
3.19
2.46
3.06
2.83
3.66
San Benito
.08
.09
.07
.06
.09
.09
San Bernardino
2.56
3.44
1.84
2.70
3.20
3.74
San Diego
5.92
6.68
4.79
5.62
4.87
6.56
San Francisco
5.68
3.67
6.39
5.80
4.85
2.19
San Joaquin
1.33
1.49
1.20
1.36
1.46
1.53
San Luis Obispo
.36
.50
.31
.36
.52
.46
San Mateo
3.57
2.79
4.59
3.12
3.43
2.76
Santa Barbara
1.23
1.31
1.30
1.17
1.33
1.34
Santa Clara
5.22
5.12
5.54
5.17
5.31
5.92
Santa Cruz
.54
.61
.54
.51
.59
.62
Shasta
.31
.41
.30
.38
.43
.48
Sierra
.01
.01
.01
.01
.01
.01
Siskiyou
.15
.18
.14
.14
.15
.18
Solano
.76
.90
.46
.62
.61
.90
Sonoma
.78
1.00
.71
.86
.90
1.06
Stanislaus
.81
.99
.69
.90
.79
1.10
Sutter
.18
.22
.16
.18
.22
.22
Tehama
.12
.15
.08
.11
.16
.15
Trinity
.03
.04
.03
.02
.03
.04
Tulare
.73
.98
.52
.72
.90
1.09
Tuolumne
.08
.10
.05
.08
.12
.09
Ventura
1.30
1.81
1.08
1.34
1.81
2.20
Yolo
.41
.43
.34
.39
.46
:40
Yuba
.23
.24
.08
.18
.17
.31
Total
100.00
100.00
100.00
100.00
100.00
100,00
Total of data $76,581,000
19,551,000
$936,300,222
$393,599,998
$4,569,986
5,016,683
*Less than .005
10/6/69
TABLE 17
IMPACT OF THE HOMEOWNERS' EXEMPTION ON
VARIOUS INCOME LEVELS.
1969-70 Property Taxes
(b)
Homeowners' Exemptions
Full Cash
Gross
Adjusted
Value of
Assessed
No
ross Income
Home
Value (a)
Exemptions
$750
$1,000
$1,500
$2,000
$2,500
$ 5,000
$ 13,700
$ 3,151
$ 329
$ 251
$ 225
$ 172
$ 120
$
68
7,500
16,300
3,749
392
314
288
235
183
131
10,000
20,100
4,623
483
405
379
326
274
222
15,000
29,700
6,831
714
636
610
557
505
453
20,000
34,900
8,027
839
761
735
682
630
578
30,000
50,600
11,638
1,216
1,138
1,112
1,059
1,007
955
40,000
69,400
15,962
1,668
1,590
1,564
1,511
1,459
1,407
50,000
79,500
18,285
1,911
1,833
1,807
1,754
1,702
1,650
100,000
145,000
33,350
3,485
3,407
3,381
3,328
3,276
3,224
a)
23 percent assessment ratio
b)
Assumed a $10.45 average tax rate
Table 18 shows that increasing the homeowners' exemption
will make the property tax a progressive tax, if the exemption is
increased to $2,000.
TABLE 18
PROPERTY TAXES AS A PERCENT OF AGI
WITH HOMEOWNERS' EXEMPTION
Property Taxes as Percent of AGI
No
AGI Class
Exemptions
$750
$1,000
$1,500
$2,000
$2,500
$ 5,000
6.6%
5.0%
4.5%
3.4%
2.4%
1.4%
7,500
5.2
4.2
3.8
3.1
2.4
1.7
10,000
4.8
4.0
3.8
3.3
2.7
2.2
15,000
4.8
4.2
4.1
3.7
3.4
3.0
20,000
4.2
3.8
3.7
3.4
3.2
2.9
30,000
4.1
3.8
3.7
3.5
3.4
3.2
40,000
4.2
4.0
3.9
3.8
3.6
3.5
50,000
3.8
3.7
3.6
3.5
3.4
3.3
100,000
3.5
3.4
3.4
3.3
3.3
3.2
TABLE 15
LONG TERM IMPACT OF THE HOMEOWNERS' EXEMPTION
1. Existing Law - $750 Exemption
1968-69
1969-70
1970-71
1971-72
(a)
Full Cash Value of Home
$20,000
$20,800
$21,630
$22,500
Assessed Value (23%)
4,600
4,784
4,975
5,175
Tax Rate
9.87
10.45
10.80
11.20
Gross Tax
$453
$500
$537
$580
Homeowners' Exemption
-70
-78
-81
-84
Net Tax
$383
$422
$456
$496
2. Proposal - $1,500 Exemption Starting in 1970-71
Gross Tax
$537
$580
Homeowners' Exemption
-160
-166
Net Tax
$377
$414
(a)Assumes a price factor of four percent annually.
I. WELFARE COSTS, COUNTY FUNDS
1/
1964-65
1965-66
1966-67
1967-68
1968-69
2/
1969-70 2/
(Budgeted)
Categorical Aid
Payments 3/
$ 90,658,353 $105,952,039 $115,491,096 $128,183,705 $168,009,898 $199,655,649
General Relief
19,102,780
19,074,277
24,738,470
29,235,436
32,747,187
36,205,821
SUBTOTAL
$109,761,133
$125,026,316
$140,229,566
$157,419,141
$200,757,176
$235,861,470
Administration
57,800,616
52,781,489
62,783,944
67,990,975
84,281,636
98,818,941
SUBTOTAL
$167,561,749
$177,807,805
$203,013,510
$225,410,116
$285,038,812
$334,680,411
Other Aid
511,621
6,789,472
5,242,983
6,014,158
6,976,423
8,092,651
TOTAL
$168,073,370 $184,597,277 $208,256,493 $231,424,274 $292,015,235 $342,773,062
II. OTHER RELATED COSTS, COUNTY FUNDS
2/
Crippled Children's
Service
$ 3,678,273 $ 4,592,022 $ 5,526,594 $ 5,267,565
Care of Court
Wards
10,271,597
10,867,666
10,599,678
10,400,587
Health, Medical
Assistance and
Hospital Costs 214,947,459 219,160,290 228,761,402 245,915,530
1/ Includes City and County of San Francisco.
2/ Figures obtained from questionnaire sent to counties by Assembly Revenue and Taxation
Committee; expenditures for counties that did not respond were estimated (18 counties).
3/ Categorical Aid Payments include aid to blind, aid to disabled, aid to families with
dependent children (all categories), aid to aged and county general relief.
III. County Tax Rate Equivalents--County Welfare Costs
Categorical &
General Relief
Administration
68-9
69-70
68-9
69-70
1 Alameda
.46
.43
27
.24
2 Alpine
.28
.26
.08
.05
3
Amador
.08
.11
.06
.09
4 Butte
.36
.40
.19
.27
5 Calaveras
.11
.10
.11
.09
6 Colusa
.16
.18
.07
.08
7 Contra Costa
.36
.40
.21
.30
8 Del Norte
.37
.40
.09
.52
9 El Dorado
.19
.22
.12
.13
10 Fresno
.57
.60
.09
.15
11 Glenn
.18
,18
.06
.13
12 Humboldt
.44
.43
.26
.31
13 Imperial
.45
.54
.16
.20
14 Inyo
.25
.27
.08
.08
15 Kern
.31
.43
.13
.20
16 Kings
.44
.44
.20
.23
17 Lake
.88
.94
.16
.17
18 Lassen
.40
.44
.16
.17
19 Los Angeles
.46
.52
.17
.15
20 Madera
.44
.54
.14
.17
21 Marin
.30
.31
.11
.15
22 Mariposa
.14
.15
.11
.15
23 Mendocino
.40
.43
.44
.56
24 Merced
.46
.48
.19
.28
25 Modoc
.19
.27
.04
.07
26 Mono
.05
.06
.04
.04
27 Monterey
.23
.26
.09
.15
28 Napa
.37
.39
.30
.31
29 Nevada
.25
.28
.12
.16
30 Orange
.11
.14
.03
.08
31 Placer
.41
.46
.31
.35
32 Plumas
.12
.12
.04
.07
33 Riverside
.32
.34
.10
.14
34
Sacramento
1.52
1.75
.19
.22
35 San Benito
.16
.20
.07
.06
36 San Bernardino
.50
.55
.15
.12
37 San Diego
.31
.31
.15
.21
38 San Francisco
.52
.59
.50
.57
39 San Joaquin
.51
.58
.25
.31
40 San Luis Obispo
.38
.35
.19
.24
41 San Matco
.19
.21
.10
.10
42 Santa Barbara
.26
.31
.12
.15
43 Santa Clara
.31
.31
.15
.21
44 Santa Cruz
.26
.25
.15
.18
45 Shasta
.31
.34
.23
.25
46 Sierra
.12
.09
.09
.10
47 Siskiyou
.25
.25
.12
.21
48 Solano
.36
.38
.11
.19
49 Sonoma
.45
.52
.25
.24
50
Stanislaus
.59
.71
.29
.41
51 Sutter
.23
.25
.14
.16
52 Tehama
.25
.28
.16
.18
$3 Trinity
.25
.31
.16
.14
54 Tulare
.54
.57
.17
.21
55 Tuolumne
.54
.52
.16
.16
$6 Ventura
.16
.17
.04
.07
57 Yolo
.28
.30
.15
.16
58
Yuhr
20
34
TABLE 22
COUNTY WELFARE COSTS BY COUNTY (In Thousands)
CTRE
1
1
2
1968-69
1969-70
1959-70
Alameda
$16,680
$18,993
$0.672
Alpine
23
27
.469
Amador
74
110
.194
Butte
1,431
1,784
.668
Calaveras
132
161
.224
Colusa
259
299
.374
Contra Costa
8,835
11,699
.697
Del Norte
178
383
.940
El Dorado
500
580
.309
Fresno
6,411
7,531
.746
Glenn
178
240
.306
Humboldt
1,694
1,980
.762
Imperial
1,158
1,482
.735
Inyo
353
410
.606
Kern
4,497
6,065
.593
Kings
1,051
1,176
.664
Lake
432
501
.564
Lassen
179
237
.680
Los Angeles
111,755
123,778
.665
Madera
849
1,118
.715
Marin
2,329
2,663
.454
Mariposa
59
77
.297
Mendocino
1,081
1,344
.994
Merced
1,610
2,028
.765
Modoc
73
105
.310
Mono
36
42
.093
Monterey
1,949
2,563
.411
Napa
949
1,101
.644
Nevada
282
407
.436
Orange
4,757
8,011
.226
Placer
829
1,008
.432
Plumas
144
165
.178
Riverside
4,702
5,866
.492
Sacramento
10,230
12,227
1.006
San Benito
161
180
.231
San Bernardino
9,645
10,548
.671
San Diego
11,290
13,670
.508
San Francisco
22,288
25,834
1.147
San Joaquin
5,183
6,402
.896
San Luis Obispo
1,464
1,607
.591
San Mateo
4,790
5,617
.309
Santa Barbara
2,478
3,124
.460
Santa Clara
11,316
14,204
.516
Santa Cruz
1,256
1,377
.43C
Shasta
1,498
1,998
.753
Sierra
19
21
.198
Siskiyou
338
448
.458
Solano
1,670
2,352
.612
County Welfare Costs by County
CTRE
1968-69
1969-70
1
1969-70-
2
Sonoma
$ 2,914
$ 3,406
$0.708
Stanislaus
3,133
4,241
1.119
Sutter
423
490
.312
Tehama
409
474
.486
Trinity
82
93
.453
Tulare
3,439
3,842
.776
Tuolumne
500
580
.722
Ventura
1,845
2,583
.248
Yolo
1,221
1,416
.576
Yuba
747
866
1.064
Total
$273,808
$321,534
1/
Per questionnaire sent to counties.
2
Projected.
GOVERNOR'S TAX REFORM PROGRAM
ASSEMBLY BILL 2049 AND
ASSEMBLY CONSTITUTIONAL AMENDMENT 70
1970-71
Program
Fiscal Year
Block Grants to Schools
Basic rates of $400 - $725
$3,001.7
Cost of living increase @ 5%
300.1
$3,301.8
Financing
Estimated value of current State
subvention to public schools
$1,473.0
Statewide non-residential property tax
at $3.50 per $100 assessed value
874.9
Statewide agricultural property tax at
$2.00 per $100 assessed value
91.5
Sales tax at 1 percent
454.6
Educational Opportunity Tax of 1/2 percent
353.0
Estimated savings in reimbursement to local
government for homeowners property tax
exemption resulting from lower taxes for
schools
72.8
Double standard deduction limited only to renters
7.0
Estimated savings in payments of property tax
relief for senior citizens from lower taxes
for schools
(4.5)*
Estimated effect of higher income tax deductions
for increase in sales tax
(-5.0)*
Estimated effect of lower income tax deductions
for the reduction in school property tax
(23.0)*
$3,326.8
* Effect second year after enactment.
7/14/69
TAX PROGRAM 1971-72
Sources of Revenue
Sales tax increase of 1 per cent
$480 million
Statewide property tax at $3.50 (excess
revenue over needs to finance block
grants of $400-725, plus cost-of-living
increase)
200 million
Additional unspecified revenue source
110 million
Additional income tax and corporation tax
in subsequent year from property tax
credits less sales tax increase
10 million
$800 million
Program Costs
Business inventory permanently at
30 per cent (45 per cent in 1971-72,
30 per cent thereafter)
$ 50 million
Credit or reimbursement for renters
equivalent to $20 for single
individual, $30 for married couples
80 million
Credit or reimbursement for homeowners
equivalent to 25 per cent of property
taxes paid in 1971 (about $140 per
taxpayer)
437 million
State assumes local welfare categorical
aid and mandate a reduction in county
tax rates equivalent to this sum (tax
relief to homeowners, landlords and
business; tax relief to homeowners
averages about $20 per taxpayer)
225 million
Open Space Reimbursement
8 million
$800 million
POINTS AGAINST PROPOSITION 8
3/70
The Billion Dollar Tax Increase Initiative
This measure is a billion dollar tax increase. Although its
welfare and education lobby sponsors falsely advertise it as
property tax relief, the facts are quite different than the
and no tax relief for renters.
propaganda. There is no net tax reduction/ But there are guarantees
that welfare and school costs will increase. Proposition 8 would
force a total initial tax increase of 41.13 billion! This is
equivalent to virtually doubling state income taxes or increasing
the sales tax by three cents. Since it also has built-in provisions
for yearly spending increases, Proposition 8 should properly be
labeled the 'Guaranteed Annual Tax Increase."
Don't Let Tricky Wording Fool You
Proposition 8 is Not a realistic effort to achieve meaning-
ful tax reform or to provide a broader-based or more equitable
method of financing public schools. Nor does it do anything to
reduce the soaring costs of welfare which have become such a heavy
tax burden on the people of California. Rich school districts
would get richer and Proposition 8 would do little for the poor
districts. School boards would be pressured by this measure to
keep property taxes at a maximum to get a maximum of increased
state support. Proposition 8 would just force the already over-
burdened taxpaying citizens to pay another $1.13 billion in
increased taxes.
Realistic tax reform cannot be achieved by merely mandating
additional spending. Nor will the problem of providing additional
school financing ever be solved by simply transferring the burden
from one level of government to another.
Don't Give School Administrators a Blank Check
Under this measure, the state would be forced to pay half of
all school costs with absolutely no guarantee of any spending
limit! The Legislature would be forced to act on school funding
by April or May even though school boards do not usually adopt
budgets until August. In April or May, there would be no way of
knowing how much additional school financing the State would be
required to provide. No matter what the fiscal condition of the
state, Proposition 8 would mandate this spending and it specifically
would not permit any legislative action to reduce your property
taxes or remove any property taxing authority by school districts.
This would give education a blank check! The only way taxes could
go is up!
Dont Send Welfare Costs Soaring!
The same is true on welfare costs. This measure mandates 90%
of welfare costs to the State, with no guaranteed controls on
expenditures. But the measure does not require counties to pass
this tax reduction on to the citizens through property tax
reductions. State funding on all new welfare would be frozen into
the State Constitution. In effect, this would be the equivalent
of giving welfare an unlimited credit card--and every taxpayer in
the state would help pick up the tab for this increased welfare
spending.
This is not the way to achieve the cost controls so necessary
to bring government costs under control.
Don't Double Your Taxes! Don't let double-talk fool you.
Vote "No on Proposition 8!
PROPERTY TAX REDUCTION
PROPOSED BY GOVERNOR RONALD REAGAN
COMPARED WITH
CALIFORNIA TEACHERS ASSOCIATION INITIATIVES
Governor's
California
Market
Program for
Teachers
Value
Tax Reform
Association
Of Home
in 1970
Initiative
$ 5,000
- $
31
I
28
20,000
-
112
-
57
50,000
-
275
-
114
100,000
-
548
-
210
Renter
$50
tax credit
$0
TAX PLAN A MILESTONE
Governor's tax reform
plan termed 'too good'
by Democrats
--see Page 3
ISSUES
Speaking Out on the
Published by the Republican State Central Committee of California
No. 6 March, 1970
California Republicans put themselves squarely on the record in favor of
upgrading the quality of education in the state and against mandatory busing
party urges
of students to achieve numerical integration at the party's recent spring con-
vention. At the same time they endorsed a resolution calling for improvement
improvement of
of education to give all students "the opportunity for an equal and quality
education."
of schools
The delegates pointed out that the large amounts of money needed to bus
students could be used more effectively in improving the educational process
not busing--
and quality of teaching. The adopted two strongly worded resolutions that
put the Republican party strongly on record in favor of better education
in reply
rather than numerical distribution of students by racial background.
The first resolution emphasized that the neighborhood school concept
to court
"best serves the educational needs of our citizens" and that "huge sums pro-
posed to be expended in crosstown busing of pupils for purposes of integra-
tion can better be spent in the improvement of our educational facilities and
quality of teaching." It emphasized the delegates' opposition to the concept
of mandatory busing and urged legislation to strengthen the neighborhood
school concept.
The committee then adopted a resolution from the floor authored by Mrs. Geraldine Rickman, a member from San Diego,
which urged the appropriation of "adequate funds for the development of alternatives in education that will assure all students
of this state the opportunity for an equal and quality education." The motion concluded with a declaration of support for the
laws of the nation.
The action by the general session of the Republican State Central Committee March 1 in San Francisco is the first by a state
political organization since the declaration by a judge recently that students in the huge Los Angeles school district must be dis-
tributed to achieve racial balance among student populations.
At the same session the delegates asked the state and federal attorney generals to investigate the riots near UC at Santa Bar-
bara and determine if they "were part of an organized conspiracy or were otherwise premeditated and, if so, to see that the
appropriate prosecutions are undertaken." They officialy deplored the rioting and destruction and lauded Governor Reagan for
his firm action taken to quell. the riots.
Page 2
March, 1970
Double-Jointed Jesse -- all talk
no place to
park 5 cars
Double-Jointed Jesse, the Democrat's faint hope for glory, knows that talk
is cheap.
as long as you don't act according to what you say.
Unruh sounded like a tough proponent of campus law and order during the
recent riots in Santa Barbara. But Double-Jointed Jesse's words don't often
parallel his actions. In this case his tough talk on campus disorders is in direct
"I sort of like the ola mansion
contrast to his actions in the Legislature.
myself," said Democrat Jess Unruh
Last year when Republicans succeeded in enacting tough laws aimed at
when reporters recently asked him if
cutting campus violence, Unruh avoided voting on the bills. When Assem-
he'd mind living in the old Governor's
blyman Frank Murphy's bill (AB534) to keep suspended persons off campus
Mansion in Sacramento.
came up for a vote Unruh was granted additional time to debate the bill, then
But he's got a problem. Said Unruh:
failed to vote either for or against it. His non-record on campus violence ex-
"my wife said under no circumstances
tends to at least two other tough bills (SB 1382 and AB 1022) where he was
would she live in there. she said our
present but declined to vote. The bills all were enacted, thanks to Republican
five kids wouldn't have a place to park
votes.
their cars."
But if everyone had followed Double-Jointed Jesse's lead there would have
Poor Jess. But we suspect that the
been a lot of talk. .and no action on campus violence bills in the Legislature
voters will save him from that dilemma
last year.
next November.
Demos more
than double
massive union funds set
GOP spending
to counter GOP volunteers
Even in the housekeeping opera-
Big money-at least $850,000-will be poured into the Democrats' voter
tions of the Legislature the extravagent
registration effort this year.
Democrats-extravagent with somebody
That's the promise of the nation's union leaders. At a recent high-level
elsc's money, that is-far outdo the
AFL-CIO conference in Florida the union overlords agreed to spend that
economy-minded Republicans.
much on voter registration this year. The amount is 70 percent greater
Democrats rang up a bill of $244,807
than the $500,000 they were reported ready to spend just a few months back.
for caucus and related staff spending
Question: what do union members think about this one-sided political
in the Senate and Assembly in 1969.
effort by their supposedly non-partisan leaders? While the unions officially
Frugal Republicans, on the other hand,
are engaged in non-partisan efforts, their support has always been overwhelm-
managed to keep spending for their
ingly for the Democratic party.
caucus and majority staff down to
Thus it looks like registration drives in 1970 will be a match between the
$109,580.
highly-successful all volunteer efforts of the Republican party (our spring
An interesting sidelight of the total
registration drive climaxes March 7 - 14) and the well-paid union juggernau
levy is the bill run up by the Assembly
for the Democrats.
Democrats under their minority leader
public aid--huge cost increase
Jess Unruh. They spent more than
half of the total by all the Legislature-
How high the cost of public assistance?
$184,843-on staff salaries alone! Rep-
Very high.
ublicans wonder why Mr. Unruh's
In the last four years medical payments have risen from $151 million tc
state paid staff was so large in relation
their present $453 million, an increase of 198 percent! And when medica
to the other groups (the Republican
payments are combined with welfare costs the total bill rises to $1.1 billion
Assembly staff spent less than half the
up 16 percent in just one year!
amount poured out by lower house
Governor Reagan has managed to keep his budgets balanced and curbed
Democrats). Did they spend all their
despite these rapid increases in public assistance, programs over which he ha
time on Assembly business?
no control.
Page 3
March, 1970
tax plan a milestone
Said one prominent Democratic lawmaker after being briefed on Gover-
nor Reagan's tax reform proposal: "It has one major flaw. It's too good."
From that Democrat's viewpoint that may be a flaw, but from the view-
point of the majority of California's taxpayers, the broad program to alleviate
low, middle
unequal tax burdens on many millions of Californians the Governor's program
income groups
is just fine.
As the Governor said in unveiling it "Our total fair share tax reform pack-
gain the most
age provides substantial and guaranteed relief to the beleagured homeowner;
it shifts certain taxes in an equitable manner. it is fair to the homeowner and
the renter and it is fair to business and agriculture; it will close loop-holes; it
will improve the method of financing our public schools, and it will help to
stimulate our economy and preserve our open spaces."
The major aspects of the program include:
-Reduction of homeowners. property taxes by increasing their exemption to $1,000 plus 20% of the remainder of the
value of the house-resulting in an average reduction of $200 in the tax bill on a $20,000 home.
-A $50 reduction in income taxes for renters-to correspond to the homeowners' reduction.
-State paying 70% of all welfare costs after the first 25 cents (which will be paid by the counties)-to case the high wel-
fare cost borne by counties.
-Inventory tax reduced by 50%-to stimulate business.
-Open space lands, with their reduced tax levels, would be mandated to the counties and replacement revenues would be
provided for the counties-to help preserve California's open areas.
-Schools would receive more equitable support by establishment of an equilization fund into which the first $2.05 of
existing school taxes would be placed and distributed evenly among all school children-to help financially-distressed
school districts without levying new taxes.
continued on page 4
$ $ Stretcher!
how tax reform affects you
How far did Governor Reagan stretch
Aimed directly at the average homeowner, Governor Reagan's tax reform
the taxpayer's dollars in his new bud-
program will provide major reductions in the total tax bill of most middle and
get?
lower income Californians. The following chart demonstrates the final impact
Consider these facts, pointed out by
of the package on various income and family levels. It accounts for all tax re-
Senator Gordon Cologne:
ductions and increases for the average family grouping.
(1) inflation ups the continuing cost
of government by 4½ percent
TOTAL NET CHANGE
Income
per year.
(without Capital
Married Couple (2 children)
Single Person
(2) California's population grows at
3½ percent a year.
Gains)
Homeowner
Renter
Homeowner
Renter
$ 3,500
I
16
- 51
10
Yet Governor Reagan's 1970 budget
5,000
- 54
22
- 52
- 20
proposes a reduction of .6 percent
7,500
- 59
27
- 61
- 23
from the budget finally authorized in
10,000
- 68
- 5
- 69
-17
1969. The Governor and his financial
12,500
- 82
- 4
- 65
-11
experts have managed to stretch the
15,000
- 90
2
- 102
- 7
dollars far enough to absorb the 8 per
17,500
- 106
3
- 113
- 5
cent built-in increase in the budget plus
20,000
117
8
- 121
the rapid increases in welfare and medi-
3
25,000
- 151
14
- 80
88
cal costs that jump far beyond the nor-
mal rate of increase, and are not under
50,000
- 81
208
193
507
the Governor's control.
75,000
299
678
538
947
That's fiscal responsibility!
100,000
575
1,154
789
1,412
state earns $350 million: Mrs. Priest
State Treasurer Ivy Baker Priest, the first woman to hold a statewide office, reports that her office has earned more than
one-quarter billion dollars since she took office.
"By the end of my full term," Mrs. Priest reports, "our investment program will have realized a return of more than $350
million in interest for the four-year period. This is the highest figure in history for any state of the nation."
Under Mrs. Priest's administration, the State Treasurer's office earned almost $100 million last year alone for the state
through its diversified investment program. This is almost double the highest amount earned by the previous Democratic
administration just three years ago.
Mrs. Priest, who has become an unofficial "Mrs. California Republican" during her three years in office, brought a broad
experience in financial affairs to the post. She served as Treasurer of the United States for eight years under the last President
Eisenhower.
Mrs. Priest has announced that she will be a candidate for reelection. In her formal announcement she cited a series of
efficiency moves made during her administration of the Treasurer's office which contributed to the increased revenue flow to
the state's coffers. In addition to the broader investment program they include such modern accounting methods as chang-
ing from first to third generation data processing equipment and improved cost-control practices, Simplified reporting pro-
cedures have made the workings of the office more accessible to the public.
Continued from page 3
-Limits would be placed on county and school district tax rates to pre-
vent their drastic increase without direct voter approval.
Revenues necessary to pay for the tax reductions would be raised in the
following manner:
balanced plan
-Sales tax would increase one cent.
to increase
-Bank and corporation tax would increase one-half percent.
-Oil depletion exemptions would be reduced, increasing income taxes for
revenues asked
owners of such property.
in Governor's
-Capital gains tax rates would be adjusted to reduce the deduction on
short-term holdings.
tax program
-Income tax withholding would be initiated on a graduated scale.
-Two new income tax brackets would be initiated, increasing taxes on
joint returns of more than $32,000 per year.
-Minimum income tax would be established to close some of the present
loopholes which allow some persons to escape paying state income taxes.
The Governor's tax reform program, developed in close coordination with
legislative leaders and other prominent tax experts such as Controller Houston
Flournoy, has received wide support from many areas.
WANT EXTRA
Republican State Central Committee
COPIES?
3916 Campus Drive
PAID
Newport Beach California 92660
Bulk Rate
U.S. Postage
Permit No. 238
Newport Beach,
"Speaking Out on the ISSUES" is
California
published monthly by the Repub-
lican State Central Committee of
California. Dennis E. Carpenter,
chairman. Glenn Pope, research
director, AI Donner, public infor-
mation officer. Additional copies
are available to Republican organi-
vations at cost through the Newport
Beach office. Rates, including de-
livery are: $1 for 50 copies; $1.50
for 100; $4 per 500; $7.50 per
1,000 and $65 per 10,000.
Tax Retorm
file
State of California
Memorandum
To 8 Senior Staff
Date : March 24, 1970
Cabinet
Subject: Proposition 8
From : Jerry Martin
Attached is the official argument against Proposition 8 that
will be in the ballot booklets. Notice that it is co-signed
by the President of the League of Women Voters and the
California Taxpayers Association.
JM:1n
A Negative or "Con" Argument on
Initiative Constitutional Amendment, Proposition No. 8
The welfare and education lobby in this proposition proposes an
instant $1.13 billion tax increase with guaranteed annual increases
thereafter. The source OI this $1.13 billion is not stated but it
must come from additional state taxes. This could double income
taxes, or increase sales taxes to from six to 10 cents. Property
taxes will not decrease.
The welfare-school spending measure constitutionally prevents
the Legislature from lowering property taxes but requires increases
of unspecified taxes. There are no cost controls but there are
provisions for cost increases.
The measure further places a major part of the state budget in
the hands of 1,144 school boards and out of control of the Legis-
lature. School budgets adopted each August will determine how much
of the money appropriated the preceding April or May is to be spent.
No proof of need is necessary. Education and welfare claims will
have Constitutional priorities over all others.
Of education funds, 85% goes for salaries. School boards will be
pressured for major salary increases. If one of the wealthier boards
grants increases, others can be expected to follow in order to
"compete." The state must pay half.
The measure will make the rich school districts richer and do
little for the poor. All existing school tax loopholes and
inequities will be frozen into the Constitution. There now are
44 ways school boards may and do bypass the $1.90 maximum tax:rate
This measure says none may be removed legislatively.
-2-
It is poor budgetary policy to freeze into the Constitution any
funding because needs increase and decrease. This measure assumes
that education needs will never. change.
On welfare, too, the measure mandates 90% of welfare costs to
the state with no expenditure controls This is equivalent to
giving welfare an unlimited credit card backed by the State
Treasury.
Since this measure requires legislative funding of all new
county programs, it will require the state to take full control
of programs dealing with pollution, drug abuse, health services
and law enforcement. This will result in many local decisions
being taken away from locally elected officials and placed in the
hands of Sacramento administrators.
This is not tax relief by any definition. It is a guarantee
of continued property taxation and of higher income and sales taxes,
probably including a tax on food purchases. It is a guarantee that
the school and welfare spenders can determine needs and then hand
the bill to the taxpayer.
Don't double your taxes. Vote NO on Proposition 8.
Robert C. Brown
Mrs. Edward Rudin, President
Executive Vice President
League of Women Voters of
California Taxpayers! Association
California
TAX PROGRAM
Estimated Fiscal Impact
(In Millions)
Property Tax Relief
1970-71
1971-72
1972-73
1973-74
1.
Homeowner's exemption
$1,000 plus 20% for single
family residences;
$1,500 for multiples, coops,
condominiums
$388
$422
$461
$502
2.
Renter relief, $50 per person
85
88
90
92
3. Increased exemption for business
inventories, 50% starting 1-1-71
-36*
95
137
146
4. Welfare, Medi-Cal property tax relief
143
167
194
225
5. Open space program
8
13
15
17
6. Increased exemption for senior
citizens
-
7
9
11
Totals
$588
$792
$906
$993
Financing
1. Sales tax increase of $.01 on 8-1-70
$422
$492
$525
$560
Exemption for existing contracts
-12
-2
-
I
2. Bank and Corporation tax increase
1/2% beginning 7-1-72
-
11
45
50
3. Limit oil depletion to 5 times cost
22
16
17
18
4.
Income tax change
Withholding
625
240
175
180
Forgiveness at 40%
-460
-20
-
I
Conversion to cash basis
-60
-
-
-
Rate increase 11% 1-1-72; 12% 1-1-73
-
15
60
96
Capital gains change 1-1-70
20
23
26
30
5. Selective conformity to Federal tax
reform
14
14
18
23
6. Savings from interaction
18
26
23
32
7.
Interest saving from withholding
4
9
10
11
Totals
$593
$824
$899
$1,000
Administrative Cost offset
-4
-7
-6
-6
Net
$589
$817
$893
$994
* Includes transfer of balance (estimated at $39 million) in the
Property Tax Relief Fund to the General Fund.
1. Program includes statewide property tax for schools which equalizes
first $2.05 of existing school property taxes.
2. Expenditure control program includes expenditure limitations for
school districts and counties. Requires permissive overrides for
cities to be subject to referendum.
3. To increase the visibility of the state-financed homeowner exemption,
the existing exemption ($750) and the increased exemption would be
computed as a reduction in net tax on the face of each tax bill.
4. Proposed program will also affect the General Fund free surplus when
withholding is adopted, accrual of personal income tax revenue will
be discontinued with a resultant decrease of $60 million in budgeted
income tax revenues and in the Reserve for Working Capital. The
sales tax rate increase will add $60 to the estimated accrual of sales
tax revenue necessitating an increase of that amount in the Reserve
for Working Capital completely offsetting the effect of change due to
withholding.