California’s Electric Car Tax-Boost Initiative Unlikely to Pass

Computer science professor's electric car is plugged in in her garage in Irvine, Calif., on Jan. 26, 2015. Lucy Nicholson/Reuters

Commentary

Proponents of a ballot initiative to spend from $3 billion to $4.5 billion annually advancing electric cars are making a big political mistake going for a tax increase to pay for it. With California spouting annual surpluses of $45 billion-plus, they should have gone for a piece of that action.

Instead, they’re floating two initiative versions and will pick the one that best resonates with the voters. One version would tack an additional 1.75 percent income tax on those making more than $2 million a year. The state’s top income tax rate of 13.3 percent already is the highest in the country of any state. The new top rate would become 15.05 percent. Supposedly it would rase from $3 billion to $4.5 billion a year.

The current top federal tax rate is 37 percent. And it looks like Democrats aren’t going to be able to raise that. Add it up. California’s wealthy would be paying 52.05 percent in income tax. But a mere move to Texas or Florida would drop that to 37 percent.

Or look at it this way. Someone paying taxes on $1 billion of taxable income would save $150.5 million by leaving. That’s a lot. No wonder Elon Musk and others have split for lower-tax pastures.

The second initiative version would, according to the Mercury News, increase the corporate tax by “2.45 percent on net income over $20 million, raising between $3.5 billion and $5.5 billion a year.”

Such a tax increase would add to the avalanche of companies already leaving. Joseph Vranich tracks such departures. His August 2021 study for the Hoover Institution, written with Lee Ohanian, was titled, “Why Company Headquarters Are Leaving California in Unprecedented Numbers.” They documented how these departures more than doubled in 2021.

The executive summary: “We discuss several economic factors that have led to these departures by raising business costs, reducing productivity, and reducing profitability, including tax policies, regulatory policies, labor costs, litigation costs, energy and utility costs, and concerns about a declining quality of life within the state. Unless policy reforms reverse this course, California will continue to lose businesses, both large established businesses, as well as young, rapidly growing businesses, some of which will become the transformational giants of tomorrow.”

Taxing corporations for this initiative would only force more to leave.

Oddly, the initiatives are being supported by some corporations, most notably Lyft. Such corporate myopia long has been a feature of American business life. Less than three years ago Gov. Gavin Newsom signed into law Assembly Bill 5, which required “gig workers,” such as Lyft and Uber drivers, to be considered full-time employees, greatly increasing the costs for such companies, tampering with their business model, and hurting workers who liked the freedom of gig jobs.

It took Lyft and Uber passing Proposition 22 in 2020 to get AB 5 off their backs. It redefined their drivers as what they really are: independent contractors.

One would think Lyft would have appreciated the importance of not interfering with market decisions. Instead, because it’s switching its fleet to electric vehicles, partly under pressure from other state laws, it wants special subsidies paid for by tax increases.

The trajectory of whatever initiative ends up on the ballot is clear. Anti-tax forces will rally against it. Given the research by Vranich and others, and the much publicized exodus of Musk and Tesla—his company ironically is the top electric vehicle maker—opponents will highlight the initiative’s jobs-killing effects.

Opponents also will point to the state’s vast surpluses. The ad writes itself: “A $45 billion state surplus and they still want to raise taxes even higher.”

Lyft also is deluding itself if it thinks it can avoid demonization of the sort it received over AB 5 from the likes of the bill’s author, Assemblywoman Lorena Gonzalez (D-San Diego). Last month she announced she would be leaving the Assembly to join the California Labor Federation.

But here’s what she tweeted back on Aug. 10, 2020, just before the Prop. 22 election: “@Uber and @Lyft have been fighting tooth and nail for years to cheat their drivers out of the basic workplace protections and benefits they have been legally entitled to.”

By reentering the political arena, Lyft is just begging for that quote to be used against it again. They need better political consultants. Maybe read some Milton Friedman books, such as “Capitalism and Freedom.”

Then there’s the venerable and trusted Howard Jarvis Taxpayers Association. It doesn’t win every fight, but it usually beats tax-increase initiatives. The Mercury News quoted President Jon Coupal, “We already have some of the highest taxes in the country. A lot of the air pollution in Southern California could be eliminated by spending transportation dollars on freeway improvements to reduce traffic jams.

“If these proposals are really priorities, they should be paid for out of the existing general fund.”

Especially when the general fund is overflowing with massive surpluses.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.