Pete Rates the Propositions
Sensible opinions on the California ballot propositions      since 1980      by Pete Stahl

Read the ratings:
Prop.   1 - YES
Election resources
About the author
Best of Pete Rates
Past results
Contact Pete
Previous elections:
November 2022
November 2020
March 2020
November 2018
June 2018
November 2016
June 2016
November 2014
June 2014
November 2012
June 2012
November 2010
June 2010
May 2009
November 2008
June 2008
February 2008
November 2006
June 2006
November 2005
November 2004
March 2004

Pete Rates the Propositions
November 1992

Pete recommends:
155   YES   $900 Million Bonds for School Construction
156   YES   $1 Billion Bonds for Rail Transportation
157   NO   Toll Highway 35-Year Limit
158   YES   Restoring the Legislative Analyst's Budget
159   YES   Restoring the Auditor General's Budget
160   YES   Property Tax Exemption for Military Widow(er)s
161   YES   Physician-Assisted Suicide for Terminal Patients
162   YES   More Autonomy for Public Employee Pension Boards
163   YES   Repeal of the Snack Tax
164   NO   Congressional Term Limits
165   NO   Pete Wilson's Budget and Welfare Bill
166   NO   Requiring Employers to Provide Health Care
167   YES   Rearranging State Taxes

My Semi-Biennial Lecture on Bonds

When California wants to finance a large project, it asks the voters for permission to take out a loan. Props 155 and 156 are just such requests. If the voters approve, the legislature may take out loans for the projects by selling general obligation bonds, which are paid back with interest over 20 or 30 years. The bond payments come out of the state's main budget, the General Fund. So when we vote on the bonds, we are really voting on whether the project in question ought to be added to the state's budget.

"Wait a minute!" I hear you cry. "What about those interest payments? Won't we end up paying more for interest than for the bonds themselves?" This used to be the case, but in the current financial climate each dollar of bond money will cost only fifteen cents in interest, accounting for inflation. (See page 64 of your ballot pamphlet for details.)

"Okay," you admit "but loans are still more expensive than pay-as-you-go." Sure they are. But loans are essential to buy a house, or a car, or anything else that you need immediately but can't pay for yet. It's worth paying the premium of interest to get the funding now.

"Well and good," you continue, "but there are almost two billion dollars in bonds on this ballot. Isn't that too much to borrow?" For you, yes, but the State of California can handle it. State Treasurer Kathleen Brown says bond payments should total no more than five percent of the General Fund. Current bond payments are 4.2% of the General Fund. The bonds on this ballot will raise it to 5.1 %, still within reasonable limits considering this year's unusually constricted budget. Yes, California's credit rating was recently lowered from AAA to AA, but that has more to do with legislative gridlock in Sacramento than our bond debt.

"And what about the state budget crisis? We've just settled a multi-billion dollar budget gap. Won't 155 and 156 just make things worse?" Yes, but not enough to make a difference. Props 155 and 156 represent less than one percent of the budget. Don't use this vote to try to balance the whole budget. You can't do it.

Props 155 and 156 will fund only tangible acquisitions, like real estate and railroad cars. It's sensible to make extended payments for items which will be used far into the future. Remember, too, that California's population continues to skyrocket at the rate of half a million people a year. Borrowing makes particular sense if you know your income will go up in the future. As the state grows and the economy recovers, the General Fund will certainly grow too.

There one last reason to vote for a bond measure. In addition to being formal requests for permission to take out "loans", bond measures are also looked upon as referenda on the merits of the proposed projects. If a bond measure fails, legislators are likely to believe that the public feels the project is not worthy of receiving any state funding. You may have meant, "yes on the project but no on the bonds," but your message to Sacramento will read, "no on the project." So if you vote down a bond measure just because you don't like bonds, you may well have killed forever the project the bonds were to have funded.

Proposition 155: $900 Million Bonds for School Construction – YES

Prop 155 will provide $900 million for construction and modernization of elementary, junior high and high schools. At least $630 million of this will be used to build new schools. Before the famous Prop 13 of 1978, most school districts funded their own construction. But local districts can no longer afford this, so the state has taken over. Since 1982, we voters have approved about seven billion dollars in school construction bonds. Nevertheless, six billion dollars worth of applications for school construction and reconstruction are pending. California gains 200,000 new students each year. We need 155 to give them places to learn.

Proposition 156: $1 Billion Bonds for Rail Transportation – YES

Prop 156 will raise Sl billion to improve rail transit in California. Its proceeds will be used to acquire rights-of-way and rail cars, and to build and improve passenger rail lines, overpasses and terminals. Prop 156 projects are listed on p. 66 of your Proposition Fun Book. These range from the long-distance San Francisco-to-Eureka Amtrak line to the cute little trolley connecting downtown Santa Cruz to the nearby UC campus. Prop 156 is the second of three billion-dollar bonds in the State's 1989 long-range transportation plan. (The first was 1990's Prop 108; you'll see the third in 1994.)

If you've read the dispassionate and well-reasoned argument against this measure in the Ballot Pamphlet, you might have doubts about Prop 156. The argument goes that rail transit cannot work in California because our population density is insufficient and travel corridors aren't well-defined. This argument is very short-sighted. We might not have the density for rail today, but with our explosive population growth it won't take long for us to reach it. Once the rail lines are there, new residential and industrial developments will spring up to take advantage of them, just as they did with the freeways. Prop 156 continues investment in our infrastructure that will allow the California lifestyle gradually to tum away from the private automobile, and we'll all benefit from that.

Proposition 157: Toll Highway 35-Year Limit – NO

Toll highways? What toll highways? You mean the New Jersey Turnpike, right?

Nope. I mean four brand-new, high-tech tollways right here in California. They'll use lasers to read a bar code on the bottom of your car and bill you later. Two tollways are planned in Orange County, one in San Diego County and one in the eastern Bay Area. Construction starts soon; roads will open as early as 1995.

The tolls pay for the construction of the roads, of course. But what happens after the construction costs are paid off? The current plan is for the tolls to continue to be collected, paying for the maintenance of roads throughout the state. Prop 157 will require toll collection to halt 35 years after the roads open. Tollways would become freeways starting in 2030.

Do you care whether the George Deukmejian Expressway will be toll or free in 2030? By then you'll be an old geezer wearing a hat peering through the steering wheel as you do 40 MPH in your 1997 Buick Riviera. Stop laughing—it could happen to you. So do you care about 157? Of course you don't, and neither do I. Let's let next century's politicians figure it out. If passed, Prop 157 will be part of the State Constitution, where it will be virtually unassailable. Vote no on 157 so we can retain our flexibility on this issue. Lord knows, we'll all wish we were more flexible when 2030 comes around.

Proposition 158: Restoring the Legislative Analyst's Budget – YES

The Legislative Analyst Office is a non-partisan branch of the Legislature that provides crucial information to your state representatives on a wide range of issues. It also provides crucial information to us, the voters, on the ballot propositions. The Office is a good thing. So good, in fact, that it was the model for the Congressional Budget Office and for several other states' fiscal offices.

In 1990, as part of Prop 140's legislative term limits and budget slashing, we inadvertently cut the Legislative Analyst Office's budget by over fifty percent. This was a bad thing. Now our legislators are dangerously uninformed, and often have nowhere to turn for information except special-interest lobbyists. Ugh. Prop 158 restores full funding to the Legislative Analyst's Office. The seven million dollars this will cost will be well spent if it results in better decisions from the Legislature.

Proposition 159: Restoring the Auditor General's Budget – YES

The Auditor General is a non-partisan branch of the Legislature that provides crucial audits of our state's finances and efficiency. It also investigates allegations of fraud or abuse by state employees. The Auditor General is a good thing. So good, in fact, that it can identify six dollars in savings and benefits for every one dollar spent funding it.

In 1990, as part of Prop 140's legislative term limits and budget slashing, we inadvertently cut the Auditor General's budget by over one third. This was a bad thing. Now our audits are done in a slipshod manner and fraud investigations aren't fully carried out. Ick. Prop 159 restores full funding to the Auditor General. The four million dollars this will cost will be well spent if it results a more efficient state government.

Proposition 160: Property Tax Exemption for Military Widow(er)s – YES

Under current law, veterans with severe military-related disabilities are given property tax discounts of anywhere up to $3,000 a year. If the veteran dies, the surviving spouse is entitled to receive the discount until he/she remarries. Prop 160 extends the discount to surviving spouses of military personnel who die while on active duty. The discount evaporates if/when the spouse remarries. Prop 160 is a way for the state to help widowed military spouses stay in their homes. And it's a way for us to recognize the tremendous sacrifices of those who have defended our freedoms.

Proposition 161: Physician-Assisted Suicide for Terminal Patients – YES

Prop 161 would legalize the physician-assisted suicide of terminally-ill patients. Several conditions would have to be met before this could take place. The patient must have an irreversible condition that will result in death within six months, and get a confirming second opinion. The patient must sign a special directive (see page 69 of your ballot pamphlet). There must be two witnesses who are not related to or financially involved with the patient. The patient must be mentally competent; if there is any question about this, the physician can require a psychiatric evaluation of the patient. If the patient is in a nursing home, one of the witnesses must be a Patient Advocate from the state Department of Aging. The patient may revoke the directive at any time, either by writing a note to that effect, or by tearing up the directive, or just by telling the physician. Physicians, nurses and hospitals who are religiously, morally or ethically opposed are not required to participate.

Once all of these conditions have been met, the physician may provide "aid-in-dying". This would most likely be a lethal injection administered by a doctor or nurse, or else a machine activated by the patient, like those of Michigan's Dr. Jack Kervorkian.

California law already allows patients to instruct their doctors to tum off any machinery that's keeping them alive—a sort of authorized death-by-neglect. Prop 161 goes beyond this, however, and allows physicians actively to initiate death. The text of 161 asserts this "aid-in-dying" is not suicide, but that's just to remove liability from those involved. Prop 161 authorizes voluntary death, and in my book that's suicide.

This issue, like abortion, is a very sensitive one; it cuts to the heart of our most personally-held beliefs. Before you vote on 161, consider your religious and philosophical beliefs, your view of medical ethics, and your idea of what the role of government should be in limiting peoples' actions. If you believe the actions legalized by 161 are simply wrong and must be prevented, by all means vote against it.

To me, the attitude of our government should be to permit actions unless they harm others. This is the essence of Liberty. In difficult cases such as this one, government should err on the side of permissiveness. I don't know whether I or my family would ever take advantage of Prop 161. But I can certainly envision others—victims of cancer, AIDS, etc.—who would. Who am I—who are you—to deny these dying people their choice of how and when to die? Yes, there is a tiny amount of room for abuse in 161. But that's no reason to vote it down. The reasoning that denies something of benefit because of a small danger of abuse would also ban automobiles, swimming pools and kitchen utensils.

Proposition 162: More Autonomy for Public Employee Pension Boards – YES

There are over a million and a half people covered by public employee retirement systems in California. These include the main Public Employees Retirement System, the State Teachers Retirement System and dozens of smaller systems. The combined assets of these systems are well over $100 billion. That's $100,000,000,000. Prop 162 is about who gets to control all that money.

This is a fight with a history. During the 70's, the retirement systems' investments paid better returns than expected. The extra money went into a special reserve fund for lean years. The reserve fund itself soon grew enormous. In 1982 the Governor and Legislature had a budget crisis on their hands. They saw this huge pot of money just sitting in the reserve fund. So they decided to raid the reserve fund to pay the government's regular contributions to the systems. In the court battle that followed, the Governor and Legislature won control over the reserve fund, which has since been used repeatedly to balance state budgets. Prop 162 would restore that control to the retirement systems.

The retirement systems are funded by government contributions. The contribution rates are set each year by an actuary. The retirement systems used to choose their own actuary, who would set rates high enough to keep the systems healthy. But in 1991 the Legislature authorized the Governor to select the actuary, who would be expected to keep the state budget healthy by reducing the contributions. Lo and behold, this is exactly what has happened. Prop 162 would return actuarial authority to the retirement systems.

Even if the retirement systems regain all their authority, the Governor and Legislature still hold a trump card: the power to change the systems' boards of directors. So if a system gets uppity, the Legislature can just install more of its own appointees and have its way. Prop 162 takes this card away, requiring voter approval of any changes in the composition of a retirement system board.

The argument against 162 is that it would remove nearly all government oversight of public employee retirement systems. Under 162 the systems would be free to set exorbitant contribution rates and pay outlandish pensions. I suppose there is some danger of this. But that danger is small compared with the near-certainty of having the reserve fund raided over and over to balance the state budget. $100 billion sure sounds like a lot of money, but it's less than $70,000 per member. $70,000 isn't a lot when you stretch it over a twenty-year retirement. If we learned one thing from the recent state budget fiasco, it's that our elected leaders can be unbelievably short-sighted when it comes to money. Taking away the Legislature's power over retirement systems will keep these pension funds away from the danger of abuse.

Proposition 163: Repeal of the Snack Tax – YES

Tax on snacks. Snacks on tax.
Here are facts on tax on snacks.
Until 1991 snacks were not taxed,
So you paid the price marked on snacks' sacks.
Then the hacks and PACs, as one of their Acts,
Passed the law that jacks the snack tax to the max.
So snacks now taxed include chips in stacks,
And pretzles on racks, and little Tic Tacs.
And bottled water, and Cracker Jacks,
And candy in paper coated with wax.

(The rationale behind extending the sales tax to snack foods was that the taxed items are non-essential, “luxury” foods. So taxing snacks wouldn't add any new costs to those buying just the essential “survival” foods. Nice theory, but it doesn't wash. Poor people spend just as many dollars on snacks as rich people. Maybe more, since stores in low-income neighborhoods tend to stock more Twinkies and Ding Dongs than apples and carrots. The sales tax won't change this; it will just make poor people poorer. Taxing snacks amounts to a flat fee, imposed regardless of one's ability to pay, and is therefore unfair.)

Even lax flacks and Iraq's worst quacks
Know who a regressive snack tax attacks!
Poor whites and blacks. People in shacks.
People who live on the wrong side of the tracks.
The tax on snacks is a try by those hacks
To balance the budget on poor people's backs!
So take those taxers off our backs
By giving the axe to the tax on snacks!

Proposition 164: Congressional Term Limits – NO

When we passed Prop 140 two years ago, we voters limited state senators to two terms in office, and assemblyrnembers to three terms. Prop 164 seeks to place similar limits on California's members of Congress. Under 164, our two U. S. senators will be limited to twelve years in office during any seventeen-year period. This amounts to a two-consecutive-term limit And Californians in the House of Representatives will be limited to six years in office during any eleven-year period. This means three terms in, three terms out, sort of. (Okay, smarty-pants, you try to figure it out.)

There's a loophole: While 164 keeps incumbents off the ballot, they will still be eligible for office through write-in votes. If 164 passes, whenever a major party has an incumbent who would be banned from the ballot, it will simply run nu candidate of its own, and instruct voters to write in the incumbent's name. You'd be surprised at how well the Democrats and Republicans can get you to learn someone's name when it counts. Maybe 164 would force incumbents to run as "independents," but that would just increase the sham of it all. Prop 164 tries to have it both ways: term limits, except when we love our incumbents enough to remember their names. It's too absurd to contemplate.

And then there's the question of the constitutionality of it all. If 164 passes, the Supreme Court will probably strike it down, citing the U. S. Constitution as the only place to stipulate the qualifications for members of Congress. If you believe this, you may be tempted to vote for 164 to send a message to Washington that we want a nationwide congressional term limits amendment. But who knows--maybe Billy Rehnquist and the Weather Vanes will uphold Prop 164. What then? If the term limits are effective, California's congressional delegation would be at a great disadvantage in seniority and experience. Our power in Washington would be severely diminished. Like it or not, Congress often pits state against state. We'll be doing ourselves no favors by handicapping our delegation with term limits while other states have none, all in hopes of getting national limits. It reminds me of the club-wielding man who says, "I'll keep whacking myself on the noggin until you give me what I want." The danger is that the other states will just let him do it.

Proposition 165: Pete Wilson's Budget and Welfare Bill – NO

Is Pete Wilson your best friend? Do you love him so much you want to give him unilateral control of the state budget? If you answered "yes," please read on. Otherwise stop here and vote no on Prop 165. Because 165 is a bill that only the Governor's mother would vote for.

Do I exaggerate? Judge for yourself. Under current law the governor must submit his budget to the legislature by January 10 each year. Prop 165 pushes the deadline to March 1, giving the Guv a nice seven-week extension. This means the legislature has 33% less time to consider the budget, but bey, who's counting? Because even if the legislature passes a budget on time, Prop 165 allows the governor to take full control by refusing to sign it and declaring a "fiscal emergency", regardless of actual fiscal conditions.

During a "fiscal emergency" the previous year's budget is extended forward, and the governor can make whatever cuts he wants without the legislature's approval (except for schools, bond payments, and two smaller categories). In fact, the legislature would be stripped of its power to override the governor's actions with a two-thirds vote. Under 165, the entire March-to-June budget process would become a feeble charade, and the governor would assume dictatorial control over the budget. How's that for democracy in action?

If the governor ever eschewed the "fiscal emergency" and actually signed a budget (with the usual line-item vetoes), Prop 165 would still allow him unprecedented power. The governor would no longer need legislative approval to reduce state welfare grants and health benefits. He could unilaterally order a five percent reduction is state workers' salaries or work time (except workers covered by collective bargaining). If spending or revenues ever varied from official estimates by a combined three percent or more, the Guv could slash spending nearly anywhere (except the aforementioned four categories). Check your balances at the door, folks. This bill would make any tyrant envious.

Even if you want Pete Wilson to become King Omnipotent, he can last only six more years (if he's lucky). Remember that we Californians elected Ronald Reagan and Jerry Brown back-to-back; we could elect almost any kook next time. If 165 passes, control of California's programs could pass to the winner of Sonny Bono vs. Lyndon LaRouche. It's kind of scary.

I haven't even mentioned what Prop 165 does to public assistance programs. The 1992-93 budget bas already reduced Aid to Families with Dependent Children (AFDC) by about five percent. Prop 165 reduces AFDC an five percent more, and an additional fifteen percent after a family bas been on aid for six months. Aid could be reduced even further if the governor chooses to cut AFDC funding. What does Prop 165 offer these poor families in return? Nothing. No subsidized housing, no job training, no day care. Just an edict to make do with 25% less, because we don't like people who leech off the state. This is the epitome of cruelty and heartlessness.

Prop 165 has dozens of similarly Neanderthal provisions, from eliminating extra AFDC benefits for first-time mothers to suspending the legislature's salaries if they're late with the budget. You can read about them in your Prop Book—it's all pretty unbelievable. I'll say this, though: Prop 165 must surely qualify Governor Wilson for the 1992 Dershowitz Award for Sheer Chutzpah.

Proposition 166: Requiring Employers to Provide Health Care – NO

Prop 166 is moot. In order for it to take effect, the U. S. Congress must grant an exception to the federal Employee Retirement Income Security Act (ERISA). As you will see, Prop 166 is radically anti-business, so you can bet the farm that Congress won't let it take effect. You can vote any way you want on 166; it won't matter. But I think you'll want to vote against it just the same.

Prop 166 would require all employers to provide health insurance to all employees and their dependents. This even includes part-time workers who put in as little as 17.5 hours a week. The employees could be required to help pay for the insurance, but only up to two percent of their wages. So a full-time worker making $10.00 an hour might contribute only forty dollars on a monthly premium m the ballpark of $300. Clearly the lion's share of 166's burden will fall on employers. Prop 166 claims to offer small businesses a 25% tax credit on their insurance premiums, but that's not enough to make a difference. Instead of a $4000 hit per employee per year, it will be a $3000 hit. It's still big bucks.

What will small businesses do when all of these extra expenses suddenly appear? That's right: they'll reduce workers' wages. Since so many peoples' wages will be cut, they won't be able to buy as much. Sales will dry up. Employers will lay people off. Finally they'll close up shop and move out of California If you think the Free Trade Agreement provides incentive for businesses to move away, wait until you see what Prop 166 does.

"Okay," you ask, "if Prop 166 is so rag-dog bad, why is it even on the ballot? Here's why: There are almost five million employed Californians (and dependents) with no health insurance. None of them can afford health care (who could?). The medical industry is tired of serving these people without being paid, so it has cooked up Prop 166. Seems logical enough. And 166 has lots of fancy frosting to make it seem fair. But 166's medical cost controls, which claim to address the real root of the problem, are utterly toothless. And predictions of enormous savings from the elimination of duplicate coverage are just plain wrong. Any true solution to California's medical insurance problem must address costs as well as coverage in a meaningful manner. Failing that, Prop 166 is just ordinary special-interest legislation, and no more deserves your vote than a bill granting me one billion dollars.

Proposition 167: Rearranging State Taxes – YES

Robin Hood! Soak the rich! Tax relief for the middle class! Sock it to Big Business! Prop 167 travels under many different guises. Its provisions are manifold, and its side effects unpredictable. But 167 effectively addresses the governmentassisted polarization of wealth that has taken place over the last decade, and is therefore worth taking a chance.

Prop 167 rearranges state taxes, reducing taxes for consumers and renters while increasing them for businesses and highincome people. 167's authors hope to cause little net change in government revenues; they simply want to redistribute the burden. Here are the details:

Sales Tax. Prop 167 will reduce the state sales tax by 1/4 percent. It will drop another 1/2 percent next July (as currently scheduled), for a total reduction of 3/4 percent. 167 will also remove the sales tax on snack foods and bottled water (as would Prop 163), and from newspapers too. These provisions will reduce government sales tax revenues by about $1.4 billion a year. I favor a reduction in sales taxes, which are regressive and hit low-income people hardest. Not that 167's plan will do so much to help; even with the drop it leaves the sales tax higher than it was ten years ago.

Renters' Credit. In 1972 California decided it wanted to tax tourists and business travelers from out of state. So it increased the sales tax and offered refunds to people who actually live here. For homeowners this refund took the form of a Homeowners' Exemption to the property tax; for renters it became the Renters' Credit on your state income tax. But in 1991 the evil government decreed that only low-income renters deserved the Renters' Credit, and reduced or eliminated it for moderate- and high-incomes. Prop 167 restores the full $60 Renters' Credit to all renters, regardless of income. That will cost the state $105 million a year.

The changes just mentioned will will reduce government revenues by about $1.5 billion a year. Here's how Prop 167 will make up for the loss:

Personal Income Tax. Currently the top two brackets for the state income tax are 11 % for income above $200,000 and 10% for income above $100,000. These two brackets are temporary, though, and are scheduled to expire after 1995. Prop 167 will make these brackets permanent. lower the 11 % bracket's bottom from $200,000 to $175,000, and create a new 12% bracket for income over $250,000. People in the 12% bracket will also get their alternative minimum tax (AMT) rate bumped from 8.5% to 9.3%. (I won't try to explain AMT.) The brackets will be adjusted for inflation as time goes by. These provisions will raise about $250 million a year.

This is the "soak the rich" part of Prop 167. It only hits people with six-figure incomes, and it doesn't even hit them hard: those with incomes of $200,000 will see increases of under a thousand dollars a year. These people have benefitted enormously from the policies of the last decade. According to the state Tax Board, the incomes of the top one percent of taxpayers increased 75% between 1980 and 1988, while those in the bottom 80% increased 0% (that's zero). All Prop 167 is doing here is reversing a misguided policy.

Bank Taxes. State law allows banks to avoid the franchise tax and local business taxes. Instead they pay a special "in lieu" tax to the state. Originally this was comparable to the ordinary business taxes, but recently it's fallen out of sync. Prop 167 abolishes the "in lieu" tax and treats banks like any other business. State and local governments can expect at least an additional $100 million a year from this. Now that banks are relatively deregulated (and are gobbling each other at a smart pace), they deserve to be treated like any other businesses.

Definition of Small Business. Businesses with fewer than thirty-six shareholders are given preferential treatment through a clause called Subchapter S. While Subchapter S is intended for small, independent businesses, you can see how it poses a temptation for creative high-stakes corporate tax jockeys. A large business could be broken up into smaller units with few nominal owners, qualifying for Subchapter Sand saving millions in taxes. Prop 167 would require that a business have under $10 million in revenues to qualify for Subchapter S. This will kick out only 5% of those currently using S, and gain the government about $300 million a year.

Business Property Taxes. When you or I buy a home, the change in ownership triggers reassessment and higher property taxes. Similarly, when over 50% of a business changes hands, its property is considered "sold"_and is r~essed. But what about large corporations, whose stock ownership changes less than 1 % each day? Slowly, imperceptibly, the ownership changes, and in a year's time 80% of the stock may be held by new owners. Under current law, the corporation is never considered "sold," so the property is never reassessed. Prop 167 changes the law so that corporations are presumed to have been "sold" every three years, unless they can prove otherwise. This will place corporations on equal footing with individuals and businesses, and provide an estima ted one to two billion dollars in annual revenue, over a third of it going to schools.

Interstate and International Business Taxes. Currently, businesses located only partially in California can decide whether to use the unitary tax (based on worldwide activities) or domestic tax (based on U. S. activities). Of course they choose whichever is cheaper; for four out of five businesses that's the unitary tax. Prop 167 eliminates the unitary option, and also changes the calculation of California income. This will add $200 million in annual state revenue.

Business Franchise Taxes. Prop 167 increases the franchise tax rate (the business income tax) from 9.3% to 10.3%. The AMT jumps from 7.0% to 7.7%. These changes will produce an additional $585 million a year. This provision is the one part of Prop 167 I find distasteful. A significant increase (over ten percent) in business tax liability will make things tougher for small businesses during these fragile times. With our high cost of living and lack of incentives, California's business climate is already causing some enterprises to flee. Raising the franchise tax won't help. And I'm not sure the government needs the additional revenue -- by now we're already past the break-even point.

Nevertheless, on the whole Prop 167 is a beneficial bill. As I like to say, you have to vote "yes" or "no" on these propositions; there is no essay section. To vote down 167 because you fear its business tax side-effects is also to vote down all its other deeply-needed provisions. If 167 passes, one has to believe the governor and legislature will come up with some compensation to business to ensure we don't sink further into recession. But if it fails, you know they'll never reduce the sales tax, restore the Renters' Credit, or enact any of 167's other broadly beneficial provisions. So vote yes on 167: it is the only way to restore the fairness we need.

Copyright © 1980-2024   Peter L. Stahl
Your comments are welcome at