Business
Column: Taxpayer 'protection' or taxpayer 'deception'? A new ballot measure aims to destroy the California state budget
It’s indisputable that the decline of state fiscal management in California began with the passage of Proposition 13 in 1978.
The tax-cutting initiative upended the tax structure that provided most of the revenues needed by localities and school districts, undermining the locals’ control of their own spending.
It was sold to voters as relief for beleaguered middle-class homeowners, but that was largely a scam: The chief beneficiaries have been the richest homeowners and commercial and industrial property owners, who have received billions of dollars in property tax breaks at the expense of residential owners.
These provisions discourage new government efforts no matter how urgent the problem to be addressed,…[and] hang like a shadow over budgets to be adopted in summer 2025.
— League of California Cities, et al
So it may be unsurprising that the heirs of Proposition 13’s proponents are trying to pull another fast one on California taxpayers.
Their tool, pushed chiefly by the California Business Roundtable, apartment developers and others of that ilk, is the so-called Taxpayer Protection and Government Accountability Act.
The Business Roundtable spent $6.375 million in 2022 pushing the initiative and an additional $770,000 last year; about $310,000 came in 2022 from the Howard Jarvis Taxpayers Assn., named after the chief promoter of Proposition 13, and about $400,000 last year from R.W. Selby & Co., a big apartment developer.
The initiative has been scheduled for the November ballot and will appear there unless the state Supreme Court throws it off; that’s what the measure’s critics have asked, citing numerous technical reasons.
The state’s political leadership is striking back in another way: through a public campaign targeting the Business Roundtable and its leading corporate members, and endorsed by Gov. Gavin Newsom, the Democratic legislative leaders, and organizations such as the League of California Cities, the Service Employees International Union, the California Medical Assn. and the California Teachers Assn.
Their strategem is to redefine the measure as the “Taxpayer Deception Act” and assert in public outreach that it would eliminate state funding for “paid family leave, disability insurance, gun violence prevention, and climate programs,” as well as funding for road and infrastructure maintenance.
Is this a fair assessment? It largely conforms to the judgment of the Legislative Analyst’s Office, which found that it would result in “lower annual state and local revenues, potentially substantially lower.”
As is so often the case when the business lobby starts whining about its difficulties operating in the largest economy and most vigorous consumer market in the United States, “deception” is an understatement.
But let’s start with the text of the initiative itself. Fundamentally, it would change the rule for the enactment of a tax increase from current law, which requires a two-thirds vote of each legislative chamber or passage by a majority of voters, to two-thirds of each chamber and a majority of voters. Obviously this raises the bar significantly.
The initiative also would redefine numerous governmental fees as taxes subject to the new rule. Perhaps most damaging, it would retroactively invalidate any revenue measures passed since Jan. 1, 2022, unless they’re re-ratified in 2025.
Taken together, “these provisions discourage new government efforts no matter how urgent the problem to be addressed, … hang like a shadow over budgets to be adopted in summer 2025, … and impair California governments’ ability to borrow,” a coalition of government advocacy organizations led by the League of California Cities told the Supreme Court in a friend-of-the-court letter. The prospect of passage is “already undermining certainty and impairing planning in government finance,” they wrote.
The initiative backers are plainly intent on riding generalized discontent with taxes to victory. The text bristles with shibboleths of the anti-tax movement, for example by blaming higher taxes on “unelected bureaucrats, empowered by politicians and the courts.” It ties itself to Proposition 13 by stating that its purpose is “to further protect the existing constitutional limit on property taxes” — i.e., Proposition 13.
Let’s take a closer look at the promoters’ lead slogans. One is that the initiative “stops politicians from using ‘hidden taxes’ disguised as fees to drive up the cost of government services.” This absurdly turns reality on its head. Taxes don’t “drive up” the cost of services — they’re levied to pay for government services, almost all of which are favored by taxpayers, and the disappearance of many of which would elicit a taxpayer revolt.
Another slogan holds that Californians are struggling with the “highest income tax, state sales tax, gas taxes, and poverty rate.”
It’s true that California’s top marginal income tax rate is the highest in the nation. But one can hardly blame that on “unelected bureaucrats”: Voters specifically endorsed the current top rates at the ballot box in 2004, 2012 and 2016 — the last by a 63%-37% vote.
The truth, moreover, is that the vast majority of California taxpayers don’t pay anywhere near the top rate, according to the Institute on Taxation and Economic Policy. Who does? The special interests behind this initiative. The highest marginal rates, ranging from 10.3% to 13.3%, kick in for single filers with incomes over $350,000 and couples with incomes of nearly $700,000 and higher.
California’s income tax is steeply progressive, meaning those who earn the most pay disproportionately more. The lowest-income 95% of households, with incomes of less than $25,200, pay less than about 4% of family income in state income tax; the highest 1%, with earnings of $862,000 or higher, pay nearly 9% of their earnings in income taxes.
If you’re wondering why executives sitting around the Business Roundtable might be agitating for lower taxes, there’s your answer.
It is true that the state sales tax rate of 7.5% is the highest in the nation. It’s also our most regressive tax, meaning it burdens lower-income Californians the most — costing the lowest-earning 20%, with household incomes of $25,200 or less, an average 7.6% of family income. That burden drops steadily as income rises, reaching a mere 1% for the blessed top 1% of earners.
One might reasonably ask why the income and sales tax rates are so high in California. The answer is Proposition 13, which eviscerated the property tax that was once the most stable and productive revenue source for local government. With the passage of Proposition 13, the revenue-raising responsibilities devolved to the state, which had no option for covering local needs except through the income and sales tax.
It should come as no surprise that the tax initiative backers don’t mention the property tax in their spiel. The reason is that California’s effective average property tax rate ranks only 33rd among the states; Texas and Florida, which boast of imposing no income tax, are both higher (6th and 26th, respectively, according to Census Bureau figures).
One other point bears mentioning, for perspective. It concerns who the beneficiaries are of these states’ tax structures. In Texas and Florida, it’s the rich. As a share of family income, the total tax burden in Texas falls heaviest on the lowest-income households — 12.8% of family income for those earning $21,700 or less — and lightest on the wealthiest — 4.6% of family income on the top 1%, earning $744,800 or more.
Florida looks the same: Households with earnings of $19,600 or less pay 13.2% of their income in state taxes, but the top 1%, earning $735,700 or more, fork over a mere 2.7% of their income in taxes.
California’s structure is much more equitable. All blocs in the income range, from the lowest 20% (less than $25,200) to the top 1% ($862,000 or more) shoulder burdens ranging from 10.3% to 12%.
Make no mistake: The promoters of the tax initiative want California to look more like Texas and Florida.
Gas taxes, which the initiative promoters also target, are a special case. It’s true that California’s gas tax is the highest in the country, at about 78 cents per gallon. But they also pay for benefits that most Californians would probably regret losing, including clean air, clean gas technology and road and bridge maintenance.
Also, a sizable contributor to the price Californians pay for gas is what Severin Borenstein of UC Berkeley has identified as the “mystery surcharge.” That’s a difference in gasoline prices, currently more than 40 cents per gallon extracted by oil producers, refiners or retailers at an unidentifiable point of the gasoline economy.
Borenstein originally traced the surcharge to a price spike following an explosion at Exxon Mobil’s Torrance refinery in 2015 that led to a more than year-long shutdown — but the spike never disappeared after the refinery came back online.
We can set aside the poverty rate for two reasons: First, its relationship to taxes is dubious, since households in poverty generally pay the lowest taxes (other than sales taxes) in California’s progressive system.
Second, according to the Census Bureau, California’s official poverty rate ranks 22nd among all states as measured by the percentage of residents living below the official poverty line, far better than states such as Mississippi, Alabama, Arkansas and West Virginia.
California does lead the nation in a calculation known as the supplemental poverty measure, but tax rates play almost no role in that calculation, which is based on factors such as housing costs.
Where does that leave us?
Proposition 13 was the child of legislative failure. Homeowners in the 1970s faced ever-higher property tax assessments due to a sharp run-up in home values. The Legislature could have crafted any of a myriad of solutions to deal with the crisis, but didn’t. The result was an outburst of voter fury at the ballot box in 1978, enacting the worst option of all.
Proposition 13 is what launched an era of government fees, for the simple if not obvious reason that the services and amenities California voters value have to be paid for somehow and Proposition 13 left few other options for doing so.
If California homeowners are struggling, one reason is that Proposition 13 shifted the burden of property taxes onto them: In 1975, single-family residences accounted for 39.9% of assessed values in Los Angeles County, and commercial-industrial properties for 46.6%. By 2018, the ratio had more than reversed, with houses accounting for 57.6% and commercial-industrial properties for 28.9%.
The “Taxpayer Protection Act” will make things worse. California voters will still want their services and amenities, but funding them will be much harder, so they’ll deteriorate. Voters will get angrier, but where will they turn and who will they blame?
The enduring rule of ballot measures applies here: If you want to know who will benefit from an initiative, just look who’s putting up the cash for it, and vote accordingly. The backers of the initiative say it’s “simple,” which is the clearest sign of all that it’s anything but.
Business
'We will not be closing.' Amid the fires, employers and employees walk a fine line between work and safety
When Brigitte Tran arrived Wednesday morning at the Rodeo Drive boutique where she works as a sales associate, she was on edge.
Smoke from multiple wildfires raging across Los Angeles County billowed overhead. The luxury shopping corridor usually bustling with tourists appeared a ghost town.
Tran’s co-worker texted their boss to let her know neighboring stores had closed, and described the acrid smoke in the air. But the woman, at home in Orange County, did not seem to grasp their concerns. “We will not be closing unless the mall instructs us to close,” she replied.
Tran, who, fearing professional repercussions, asked that her place of work not be named, grew more anxious as the hours ticked by. Around 3 p.m., she and the two other employees working that day mutinied. They packed up, told the security guard to head home, and locked the doors a few hours before closing time.
As the wildfires have raged across Los Angeles County, choking the air, closing schools and forcing tens of thousands of people to evacuate, employers and employees alike have had to manage a difficult balancing act between work and well being. Some employers responded swiftly to the crisis, shutting down offices and shifting to remote work, providing outdoor workers with masks and other protective equipment, and offering support for employees forced to evacuate. Others have been less adept, clumsy in their communications or wholly unmoved by worker concerns — sparking anger among their ranks as a result.
The fires have underscored the need for companies to have a clear plan in place to respond to emergencies, said Jonathan Porter, a meteorologist at private weather forecaster AccuWeather. The obligation, he said, goes beyond monitoring whether an office is in an evacuation zone. For example, as the current devastation unfolds, businesses should be aware of the “copious amounts of dangerous smoke that’s wafting into the air” and be prepared to provide outdoor workers with quality respirators or move them away from polluted air.
Some employers gave employees flexibility. Snap, the Santa Monica-based creator of the photo messaging app Snapchat, for example, kept its offices open on Wednesday but encouraged employees to work remotely, said a company spokesperson.
Others changed course after fielding criticism.
An announcement by UCLA that the campus would remain open for classes and regular operations on Wednesday drew anger from some instructors and students on social media.
Victor Narro, project director for the UCLA Labor Center and a lecturer on campus, said in a post on X he would ignore UCLA’s mandate and hold an optional class online.
“Students have been up all night panicked about sleeping through evacuation orders, winds still high, branches falling all over Westwood, power outages across city, & our new chancellor (on his 2nd day) thought this should be his first bold call…” wrote Nour Joudah, an assistant professor in UCLA’s Asian American Studies Department, in another X post.
That evening, UCLA changed course as conditions worsened, announcing it would close campus.
On Saturday, UCLA Chancellor Julio Frenk released a statement saying classes would be held remotely for at least another week and campus operations would be curtailed. “We ask for continued flexibility and understanding as we all work through these difficult times,” Frenk wrote.
But for many workers, the chaos of the last few dayshas left them feeling like they are fending for themselves.
Tim Hernandez, a driver with Amazon Flex, an on-demand Uber-like program in which people use their own cars to deliver packages, was assigned a route Tuesday along the Pacific Coast Highway toward Malibu, which was rife with closures.
When he questioned whether making the delivery was safe, he said dispatchers at a Amazon facility in Camarillo brushed him off, leaving him to choose between concerns for his safety and worries that his rating in the Flex app would be hurt if he refused to go. He decided to try to make the deliveries, battling gusts of wind that knocked him over at one point. He lost cell signal, however, and was forced to return to the warehouse without completing the vast majority.
And when he arrived for his shift Tuesday, Alfred Muñoz, 43, an Amazon delivery driver who works out of a warehouse in the City of Industry, said he was handed an N95 mask but given little other instruction.
“It was just kind of business as usual,” Muñoz said.
High package counts and the number of stops on his assigned routes this week have made work even more difficult. On Tuesday, with wind gusts whipping debris around making it difficult to see, he had about 180 stops and 290 packages to deliver. On Thursday, the air thick with smoke and ash, he had more than 300 packages.
He woke up Thursday morning with a bloody nose and a sooty black crust in the corners of his eyes.
In response to a request for comment, Montana MacLachlan, an Amazon spokesperson, said the company was “closely monitoring the wildfires across Southern California and adjusting our operations to keep our employees and those delivering for us safe.”
“If a driver arrives at a delivery location and the conditions are not safe to make a delivery, they are not expected to do so and the driver’s performance will not be impacted,” she said.
At the Brentwood location of popular Italian eatery Jon & Vinny’s, staff complained of headaches and sore throats in a text message group chat. An employee, who asked not to be named fearing retaliation at work, said that on Tuesday, staff huddled around an iPad with a fire map pulled up to keep an eye on the expanding evacuation zone. From the front of the restaurant, they could see the glow of the Palisades fire.
The employee said they were frustrated management kept the restaurant open when the perimeter of the mandatory evacuation zone was just two blocks away. On Wednesday, every server scheduled to work called in to say they were not coming, the employee said.
A spokesperson for Joint Venture Restaurant Group, which owns Jon & Vinny’s, did not immediately respond to a request for comment.
During natural disasters and extreme weather, employers’ choices can sometimes mean life or death, said David Michaels, a professor at the Milken Institute School of Public Health and a former assistant secretary of labor for the Occupational Safety and Health Administration.
He pointed to recent floods from Hurricane Helene that killed several workers at a plastics manufacturer. The tragedy has drawn scrutiny from state investigators, and a wrongful death lawsuit accuses the company of requiring employees to stay on site amid flooding after they requested permission to leave.
“It’s incumbent on employers to ensure the safety of their workers,” Michaels said. “The safety of their employees must take precedence over business concerns.”
Yasha Timenovich, 48, a driver for rideshare app Lyft and food delivery platform DoorDash, is more worried about declining earnings than on-the-job safety. With many restaurants and other businesses closed and would-be customers fleeing the city, he said that rides and deliveries have been slow. Traffic patterns have been strange and unpredictable with families piling into vehicles to flee fires.
Timenovich, who faced an order to evacuate his Hollywood apartment with his fiance and 6-year-old daughter Wednesday night, said he planned to stay with relatives for a few days in San Luis Obispo, where he hopes business will be better.
“I’m going to get out of here because it’s too crazy with these fires,” Timenovich said.
Scott Bessent, the billionaire hedge fund manager whom President-elect Donald J. Trump picked to be his Treasury secretary, plans to divest from dozens of funds, trusts and investments in preparation to become the nation’s top economic policymaker.
Those plans were released on Saturday along with the publication of an ethics agreement and financial disclosures that Mr. Bessent submitted ahead of his Senate confirmation hearing next Thursday.
The documents show the extent of the wealth of Mr. Bessent, whose assets and investments appear to be worth in excess of $700 million. Mr. Bessent was formerly the top investor for the billionaire liberal philanthropist George Soros and has been a major Republican donor and adviser to Mr. Trump.
If confirmed as Treasury secretary, Mr. Bessent, 62, will steer Mr. Trump’s economic agenda of cutting taxes, rolling back regulations and imposing tariffs as he seeks to renegotiate trade deals. He will also play a central role in the Trump administration’s expected embrace of cryptocurrencies such as Bitcoin.
Although Mr. Trump won the election by appealing to working-class voters who have been dogged by high prices, he has turned to wealthy Wall Street investors such as Mr. Bessent and Howard Lutnick, a billionaire banker whom he tapped to be commerce secretary, to lead his economic team. Linda McMahon, another billionaire, has been picked as education secretary, and Elon Musk, the world’s richest man, is leading an unofficial agency known as the Department of Government Efficiency.
In a letter to the Treasury Department’s ethics office, Mr. Bessent outlined the steps he would take to “avoid any actual or apparent conflict of interest in the event that I am confirmed for the position of secretary of the Department of Treasury.”
Mr. Bessent said he would shutter Key Square Capital Management, the investment firm that he founded, and resign from his Bessent-Freeman Family Foundation and from Rockefeller University, where he has been chairman of the investment committee.
The financial disclosure form, which provides ranges for the value of his assets, reveals that Mr. Bessent owns as much as $25 million of farmland in North Dakota, which earns an income from soybean and corn production. He also owns a property in the Bahamas that is worth as much as $25 million. Last November, Mr. Bessent put his historic pink mansion in Charleston, S.C., on the market for $22.5 million.
Mr. Bessent is selling several investments that could pose potential conflicts of interest including a Bitcoin exchange-traded fund; an account that trades the renminbi, China’s currency; and his stake in All Seasons, a conservative publisher. He also has a margin loan, or line of credit, with Goldman Sachs of more than $50 million.
As an investor, Mr. Bessent has long wagered on the rising strength of the dollar and has betted against, or “shorted,” the renminbi, according to a person familiar with Mr. Bessent’s strategy who spoke on condition of anonymity to discuss his portfolio. Mr. Bessent gained notoriety in the 1990s by betting against the British pound and earning his firm, Soros Fund Management, $1 billion. He also made a high-profile bet against the Japanese yen.
Mr. Bessent, who will be overseeing the U.S. Treasury market, holds over $100 million in Treasury bills.
Cabinet officials are required to divest certain holdings and investments to avoid the potential for conflicts of interest. Although this can be an onerous process, it has some potential tax benefits.
The tax code contains a provision that allows securities to be sold and the capital gains tax on such sales deferred if the full proceeds are used to buy Treasury securities and certain money-market funds. The tax continues to be deferred until the securities or money-market funds are sold.
Even while adhering to the ethics guidelines, questions about conflicts of interest can still emerge.
Mr. Trump’s Treasury secretary during his first term, Steven Mnuchin, divested from his Hollywood film production company after joining the administration. However, as he was negotiating a trade deal in 2018 with China — an important market for the U.S. film industry — ethics watchdogs raised questions about whether Mr. Mnuchin had conflicts because he had sold his interest in the company to his wife.
Mr. Bessent was chosen for the Treasury after an internal tussle among Mr. Trump’s aides over the job. Mr. Lutnick, Mr. Trump’s transition team co-chair and the chief executive of Cantor Fitzgerald, made a late pitch to secure the Treasury secretary role for himself before Mr. Trump picked him to be Commerce secretary.
During that fight, which spilled into view, critics of Mr. Bessent circulated documents disparaging his performance as a hedge fund manager.
Mr. Bessent’s most recent hedge fund, Key Square Capital, launched to much fanfare in 2016, garnering $4.5 billion in investor money, including $2 billion from Mr. Soros, but manages much less now. A fund he ran in the early 2000s had a similarly unremarkable performance.
When devastating wildfires erupted across Los Angeles County this week, David Torgerson’s team of firefighters went to work.
The thousands of city, county and state firefighters dispatched to battle the blazes went wherever they were needed. The crews from Torgerson’s Wildfire Defense Systems, however, set out for particular addresses. Armed with hoses, fire-blocking gel and their own water supply, the Montana-based outfit contracts with insurance companies to defend the homes of customers who buy policies that include their services.
It’s a win-win if the private firefighters succeed in saving a home, said Torgerson, the company’s founder and executive chairman. The homeowner keeps their home and the insurance company doesn’t have to make a hefty payout to rebuild.
“It makes good sense,” he said. “It’s always better if the homes and businesses don’t burn.”
Torgerson’s operation, which has been contracting with insurance companies since 2008 and employs hundreds of firefighters, engineers and other staff, highlights a lesser-known component of fighting wildfires in the U.S. Along with the more than 7,500 publicly funded firefighters and emergency personnel dispatched to the current conflagrations, which have burned more than 30,000 acres and destroyed more than 9,000 structures, a smaller force of for-hire professionals is on the fire lines for insurance companies, wealthy individual property owners or government agencies in need of additional hands.
Their presence isn’t without controversy. Private firefighters hired by homeowners directly have drawn criticism for heightening class divides during disasters. This week, a Pacific Palisades homeowner received backlash for putting a call out on X, the social media site formerly named Twitter, for help finding private firefighters who could save his home.
“Does anyone have access to private firefighters to protect our home in Pacific Palisades? Need to act fast here. All neighbors houses burning,” he wrote in the since-deleted post. “Will pay any amount.”
“The epitome of nerve and tone deaf!” someone replied.
In 2018, Kim Kardashian and Kanye West credited private firefighters for saving their $60-million home in the Santa Monica mountains during a wildfire. But those who serve wealthy clients make up only a small fraction of nonpublic firefighters, according to Torgerson.
“Contract firefighters who are hired by the government are the vast majority,” he said. The federal government has been hiring private firefighters since the 1980s to support its own forces. According to the National Wildfire Suppression Assn., there are about 250 private sector fire response companies under federal contract, adding about 10,000 firefighters to U.S. efforts.
Some private firefighting companies, including Wildfire Defense Systems, are known as Qualified Insurance Resources and are paid by insurance companies to protect the homes of their customers. Wildfire Defense Systems refers to its on-the-ground forces as private sector wildfire personnel.
Wildfire Defense Systems only works with the insurance industry, but other privately held firefighting companies contract with industrial clients such as petrochemical facilities and utility providers. Wildfire Defense Systems declined to disclose company revenue or what it charges for its services.
Allied Disaster Defense, a company that has sent personnel to the fires in Los Angeles, offers services to both property owners and insurance companies. Its website says its services will “enhance the insurability of properties” and “contribute to reduced claims.”
The website also has a page dedicated to services for private clients, which include emergency response and assistance with insurance claims for “high net-worth and celebrity” customers. The company does not list prices for its services and has nondisclosure agreements with its private clients.
Several other private firefighting companies are based in California, including Mt. Adams Wildfire, which contracts with government agencies, and UrbnTek, which serves Los Angeles, Orange County and San Diego among other areas. Along with spraying fire retardant on trees and brush to stop an advancing fire, the company offers “a double layer of protection by wrapping a structure with our fire blanket system.”
Torgerson, a civil engineer with 34 years in emergency services, said he has been struck by the speed of the current wildfires. While typically it takes two to 10 minutes for a fire to sweep through a home, he said, the Palisades fire is traveling at higher speeds.
“It’s moving so fast, it’ll likely take one to two minutes for these fires to pass over the properties,” he said.
He said his company responded to all 62 of the wildfires that threatened structures in California in 2024 and didn’t lose a property.
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