SF Standard: California’s worst addiction: Tax increases that don’t fix what’s broken
No sooner had Gov. Gavin Newsom spearheaded Proposition 50, the congressional redistricting measure that defuses the bomb tossed by President Donald Trump and Texas Gov. Greg Abbott, than he found himself dealing with two other explosive devices.
These were planted by two of the governor’s deep-pocketed supporters: the Service Employees International Union-United Healthcare Workers West and the California Teachers Association, which just filed, respectively, a wealth tax initiative that targets any Californian with assets of more than $1 billion and a ballot measure that would make a temporary income-tax increase permanent.
The governor must now decide whether he should retreat from or continue to support the tax-and-spend policies that have saddled California with the highest state income-tax rate and the nation’s highest rates of poverty, unemployment, and homelessness, as well as the highest energy costs in the continental U.S., without producing better public services.
The totality of these policies has proved poisonous to California citizens. Since Gov. Arnold Schwarzenegger left office in 2011, California’s budget has grown two and a half times to almost $300 billion. But no rider of BART, parent of a California student, or renter or prospective homebuyer in the state would say their life is two and a half times better.
The sorry truth is that the extra tax revenue has flowed largely to government employees in the form of lavish compensation packages. Take the empty promises made before voters approved Prop. 30’s “temporary” tax increase in 2012: better schools and balanced budgets. Instead, they got a master class in how public unions steer tax revenue into their own wallets while providing minimal service improvements.
The temporary taxes have raised some $100 billion since 2012 — about $60 billion for the state, $36 billion for K-12 classrooms, and $4 billion for community colleges. But since 2012, California has spent $86 billion on higher retirement benefits for state employees. The same holds for K-12 and community colleges, where annual pension spending more than tripled, from $2.3 billion to $7.3 billion, far exceeding the average annual revenue produced by the tax. (This excludes salary growth and other post-retirement benefits.)
The result? California spends $24,000 per K-12 student — well above the national average — but math and reading scores have declined. Increasingly, California parents look with envy at public schools in Mississippi and other red states.
The root of California’s tax-and-spend political economy was Gov. Gray Davis’ 1999 decision to grant a norm-shattering retroactive pension increase to state employees. Since then, annual state pension spending has risen more than tenfold — not due to state employees delivering exponentially better services but because benefit formulas were enhanced even as investment returns failed to keep pace with projected results.
Not even the most staunchly conservative California governor could undo these changes. Pension obligations are constitutionally protected in California, creating a one-way ratchet where benefits can only increase. When investment returns for CalPERS, the state’s pension fund, fall short, taxpayers must cover the difference. State employees and pensioners are California’s untouchables.
Since taking office in 2019, Newsom has boosted staffing in the executive branch by 20% and added $11 billion to annual spending on compensation and benefits. When faced with recent deficits, he tapped budget reserves rather than freeze hiring or compensation. This isn’t incompetence — it’s political self-preservation.
Meanwhile, Texas and Florida have absorbed massive population growth while keeping per-capita spending increases below the rate of inflation. The difference isn’t the cost of living; it’s the cost of elected officials in California giving in to public employee unions. Breaking that cycle requires citizen action. Real change will come only when voters reward politicians who serve them instead of special interests.
As Newsom eyes the White House in 2028, he faces a question that could define his candidacy: Should he roll over and endorse two new taxes and even higher spending? Or does he have the will to challenge the unions that have funded his campaigns?
At the same time, California voters should ask a simple question: If the last $104 billion in “temporary” taxes produced so little improvement while sending pension costs soaring, why would the next $100 billion be any different?
David Crane is a lecturer in public policy at Stanford University and president of Govern for California.
