'America's Greece,' California dreams of raising taxes

Watching the twist and turns of the financial/political crisis gripping Greece can make you wonder whether there's such a thing as too much democracy.

In the case of Greece, there is a common view that the stakes for the global economy are simply too high to let the Greeks decide for themselves how to run their country. Not that there's any alternative handy.

On the opposite side are people who believe there can never be such a thing as "too much democracy."

To them I would say, come to California.

Asking whether California is America's Greece seems like a fair question to more and more people. It's in financial crisis and, like Greece, has teetered on the brink of bankruptcy.

(With a GDP of about $1.9 trillion it also has an economy that is nearly six times that of Greece, so California's too-big-to-fail impact on the global economy is not inconsiderable either.)

And once again this election year California voters are poised to make an even bigger mess of things through their devotion to direct democracy: the ballot initiative, which has made a mess of their tax system.

The most recent example of how the democratic impulses of Californians can morph into a tyranny of the majority was the 2008 ballot initiative (Proposition 8) that extinguished the court-ordered right of gay people to marry.

A court of appeal recently overturned that initiative and the U.S. Supreme Court will probably have to sort it all out.

But prior to Prop 8, California's most famous ballot initiative was Prop 13 which, in 1978, handcuffed the legislature's taxing ability.

The governor at the time, Jerry Brown (who is back in office now), opposed Prop 13, but the people overruled him.

Vote to raise taxes

Prop 13 put a cap on property taxes and today it is the untouchable third rail of California politics.

Because property taxes made up a large part of education funding, Prop 13 not only dramatically affected revenues, it also restructured the way in which public schools are funded.

Today homeowners pay a one per cent tax on their property and their property assessments never exceed a two per cent increase a year unless there is a change in ownership.

Meanwhile, California's schools, which were once among the best in the country, now rank about 48th in surveys.

Brown is once again governor of California and this time it is he who is using a ballot initiative to try to restore some fiscal responsibility to the state budget, which is currently $16 billion in deficit.

He wants to raise taxes.

Actually, he's promising to cut spending but if he can get his tax hike approved, he'll forego about $6 billion in spending and job cuts.

So that's the trade-off; more taxes, fewer cuts.

The tax hike he's proposing is an addition of one-quarter of one per cent to the state's sales tax and a higher income tax rate for high-income earners.

It would be a clear choice for voters, except that Brown's tax increase isn't the only one likely to be on the ballot in November. There are several, including Molly Munger's.

The Munger plan

Munger is a Pasadena lawyer with a very large bank account. Her father, Charles Munger, is the billionaire vice-chairman of Berkshire Hathaway, which means Molly has one degree of separation from Warren Buffet, the Oracle of Omaha, who started all the hubbub about making rich people pay more taxes.

Munger's ballot initiative would make most Californians pay higher taxes and it would stipulate that most of the revenue go to public schools and early childhood development programs.

She expects her campaign to cost more than $10 million, which means it will be a serious threat to the governor's initiative.

And that's the problem.

Generally speaking, support for raising taxes is going to come from the same Democrats who elected Brown, a group that probably includes Munger herself, so there might be just enough of their votes to carry the day.

Unless they split their vote between the governor's tax plan and Munger's, which they likely will.

In that case the same Democrats who elected Brown could end up blocking him from doing what they elected him to do, and forcing him to do exactly what they don't want, which is cut even more spending.

If that's how it turns out it in November, it will boggle the minds of many clever people, but in California, perhaps not unlike Greece, this is what democracy looks like.