Episode Transcript:
Olivia Allen-Price: Really wealthy people in America don’t just earn a regular paycheck and chuck those earnings into a savings account. Most of their net worth is tied up in assets like stocks and bonds.
Ericka Cruz Guevarra: These assets are worth whatever the market says they’re worth on any given day. And if they increase in value…current law says that growth isn’t taxed while it sits there—it only gets taxed when an asset is actually sold.
Olivia Allen-Price: Because the wealthy hold most of their fortunes as these paper assets, much of their growing wealth goes untaxed year after year. Is that a problem to fix? Or an essential part of the economy that keeps businesses humming?
Ericka Cruz Guevarra: How we tax wealth is exactly what’s under discussion in Prop 42. Here’s how it reads on your ballot.
Voice Over: Prohibits new state personal property taxes and certain retroactive state taxes.
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Ericka Cruz Guevarra: I’m Erika Cruz-Gavarra, host of The Bay.
Olivia Allen-Price: And I’m Olivia Allen-Price, host of Bay Curious.
Ericka Cruz Guevarra: We are back with another edition of Prop Fest … where our teams at The Bay and Bay Curious break down each statewide proposition on the California ballot.
Olivia Allen-Price: Today, we’re going through Proposition 42, which aims to prevent a wealth tax. Here to walk us through it is KQED political correspondent and co-host of the podcast, Political Breakdown, Marisa Lagos. Welcome, Marissa. Hey. Big picture. What is Prop 42 about?
Marisa Lagos: Property too has to do with what taxes you pay on sort of what you own in California. This is specifically targeting monetary assets. So think about like you pay personal taxes on things like your car, right? Car registration is a type of tax. Part of that bill is based on the value of your car. You might pay property taxes, for example, right. But there are other types of personal property that aren’t taxed right now. And one big example is financial assets like stocks or investment accounts. So you’re not taxed on your retirement account just for having one, right? You get taxed that money when you take it out to spend it. People with stock portfolios are not tax on that either until they try to remove the money and you pay capital gains on whatever the increase has been. So, the investments themselves, though, are not taxed right now. Prop 42 wants to codify the status quo in the Constitution in California, basically by saying you cannot tax monetary assets. And it also does a second thing, which is what opponents say is the real reason it’s on the ballot, is it would prevent California from enacting any kind of new wealth tax on its citizens. Prop 40, of course, that billionaire tax that’s on ballot as well. Is exactly that. It’s a tax on people’s overall wealth, regardless of sort of where it sits.
Olivia Allen-Price: So this is a clap back to Prop 40, the billionaire tax.
Marisa Lagos: Absolutely. This is one of two ballot measures actually before voters on this ballot that really seeks to undercut or potentially nullify altogether that proposed wealth tax on billionaires. So if Prop 41 or Prop 42 passes with more votes, they could essentially prevent the state from collecting the billionaire tax, even if that also passes.
Olivia Allen-Price: But Prop 42 isn’t just about billionaires. It bans new taxes on all wealth, and that includes stock portfolios, IRAs, 401Ks, 403Bs, stuff that a lot of everyday Californians have.
Marisa Lagos: That’s right. And I think that’s what you’re going to be hearing from Prop 42 proponents is that this isn’t about billionaires. This is about your retirement account and, you know, protecting it. You know, I will say right now, we don’t, you know, there’s no serious proposals out there that I’ve seen to do something like this. Although when I talked to proponents, they did, you know, mention that there have been some attempts in the legislature, at least introductions of, you know, potential laws that would tax some assets. So. It’s not a totally like out there idea, but I think it’s hard to see this as only about, you know, that issue and all of our 401Ks when you would really have to climb a lot of hurdles in order to get a sort of tax on assets passed as it stands right now.
Olivia Allen-Price: So, aside from Prop 40, if you kind of put that to the side and just think about how California or the federal government do tax people in America. The income tax is primarily how things are done. But if we did want to raise taxes on high earners, super high earners, these billionaires, is there even a way to do it that isn’t through a wealth tax that looks at not liquid funds?
Marisa Lagos: I don’t think so, because that’s how these folks have built their wealth. Once you get to that level of wealth, it’s largely because you got stock options from the company that you founded or invested in. And then because of the tax code we have, there’s no incentive to sell that. There’s an incentive not to sell it, right? And so I think that these, that is why we’re seeing something like this billionaire We’ve created a tax code that makes it very easy to avoid paying high taxes if you have this much money. And a lot of the ways that, you know, people sort of go about managing their wealth are with the intention of avoiding taxes that you would otherwise face.
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Olivia Allen-Price: We’re going to take a quick break, but when we get back, more on Prop 42.
Sponsor messages
Olivia Allen-Price: All right, we’re back with Marisa Lagos talking about Proposition 42. Marisa, who is supporting this measure that makes it harder to tax wealth here in California, and why?
Marisa Lagos: So it’s really the same people that are supporting Prop 41 and that oppose Prop 40, the billionaire tax. Building a Better California, which is a PAC that was created by Sergey Brin and others, is funding the campaigns for this measure. They’ve raised almost $50 million to try to get Prop 42 over the finish line. So I sat down with Josh Rauh. He’s a Stanford University finance professor. He’s senior fellow at the Hoover Institution. And he thinks that leaving the door open for a wealth tax could cost the state.
Josh Rauh: We’re driving people away. We’re doing with the income taxes, and we’re doing it with this with the proposed wealth taxes So we would have to look for for for other measures economics is pretty clear about what some of the more efficient types of taxes are some of these have to do with consumption taxes meaning taxes on sales, which if you want to Make them progressive could be targeted towards luxury goods
Olivia Allen-Price: And there are some groups who are supporting this one who I wasn’t expecting, like California Professional Firefighters, the State Building and Construction Trades Council of California. Why are some of those folks supporting 42?
Marisa Lagos: I mean, what they would say is that they want to protect their retirement accounts, their pensions. You know, one of the trade offs you make being a public servant is often you might make a lower wage than you would in the private sector, but you have good retirement benefits. You have a decent sized pension fund.
Olivia Allen-Price: Who is fighting this and why?
Marisa Lagos: Yeah, so SEIU, United Health Care Workers West is the biggest opposition. They’re the ones that wrote Prop 40, the billionaire tax, and they are obviously invested in ensuring not only that it passes, but that these competing measures do not undercut it. So they’re really using the Prop 40 campaign to also campaign against Prop 41 and Prop 42. And, you know, they say that this is not really about protecting average people’s retirement, that this essentially just a red herring to get normal California voters to vote for something that would nullify the wealth tax, the billionaire tax, and that, you know, that they’re essentially just using this threat of taxing your retirement account in order to convince you to do so. I spoke with Emanuel Sayez. He’s a professor of economics at the University of California, Berkeley. He actually helped craft Prop 40, the wealth tax proposal. And he thinks that these concerns about taxing all of our 401Ks are way overblown. He points out the legislature has had the ability to do that, to enact a wealth tax for decades and has never done so.
Emanuel Saez: It’s almost impossible to imagine that they would, by themselves, you know, increase one’s taxes. They are too scared of increasing taxes. Taxes in California are now increased almost suddenly through ballot initiatives.
Marisa Lagos: And that’s true. We rarely see the legislature and governor back tax increases. Most of the time, if they do, it’s to put it on the ballot in front of voters. I think the other thing to point out here is that even if this ballot measure passes, you can still go back to the voters and overturn it. So the idea that this is like putting your retirement in a lockbox and there will never be another attempt to do it, not totally true. You can always go back the voters and change things regardless of, you know, what they voted on before.
Olivia Allen-Price: Now when it comes to campaign spending. What are we seeing on 42?
Marisa Lagos: Well, the Yes on 42 side has raised and spent most of almost the 50 million dollars in their account. But we’re also seeing some crossover spending. As I said, building a better California, which is that PAC funded by the billionaires, is donating in all three campaigns. They’re putting money against Prop 40 through that PAC. They’re funding money for Props 41 and 42. And I would expect to see Building A Better California to continue. To contribute to the Yes on 42 campaign.
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Olivia Allen-Price: How do you think voters will be thinking about 40, 41, and 42? Do you think they’re always going to be connecting one to the other? Or could people be, you know, for or against the billionaire attacks and then find something they either like or don’t like in 41 or 42? How connected truly are these?
Marisa Lagos: The intention of the folks who wrote 41 and 42 is to not talk about the connection to the billionaire tax. They want to just promote what they see as good government measures, and they thought that this was the most politically expedient way to make an argument in a year where billionaires are not super popular, that essentially you don’t have to talk about Prop 40. You can just talk about these. I think on the other side, you’re going to see these labor unions really try to yoke all three measures in voters’ minds in order to ensure that if you support the billionaire tax, you don’t then take a second or third vote that undercuts it. But I think that that is sort of an open question. And given the uneven amount of money, how much more money you have to fight the billionaire tax from the billionaires, it’s going to be a challenge for the labor unions and others to make that case.
Olivia Allen-Price: Marisa Lagos is a political correspondent at KQED and co-host of the podcast, Political Breakdown. Thanks, Marisa.
Marisa Lagos: Thank you.
Olivia Allen-Price: In a nutshell, a vote yes on Prop 42 means you want no new taxes on investment accounts or personal assets. You also want no retroactive state taxes on paper assets. A no vote means that things stay as they are now.
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Ericka Cruz Guevarra: That’s it for our latest episode of PropFest. How we doing? How we feeling? Feeling smarter, feeling ready to vote? Well, there’s plenty more where that came from. From now until October 9th, the Bay and Bay Curious teams here at KQED are gonna be dropping breakdowns of all of the statewide propositions on your ballot this year to leave you feeling ready to vote this November. Stay locked in and make sure you’re subscribed to the Bay so you don’t miss out on the next ones.
Olivia Allen-Price: PrepFest is a collaboration between the Bay and Bay Curious podcasts. It’s produced by and me, Olivia Ellen Price.
Ericka Cruz Guevarra: We get extra support from Katie Springer, Jen Chien, Maha Sanad, and Ethan Tovin-Lindsey.
Olivia Allen-Price: [00:12:38] And the whole KQED family. You can find audio and transcripts for this series at kqed.org slash prop fest.
Ericka Cruz Guevarra: Our show is made in San Francisco at member-supported KQED. If you appreciate the work that we’re doing here on PropFest, please consider becoming a sustaining member of KQEd. We can’t do this work without you. Just go to donate.kqed.org slash podcasts. I’m Olivia Ellen Price. And I’m Erika Cruz Guevara. We’ll be back tomorrow with an explainer on Proposition 43, which would raise the threshold for special tax measures. We’ll see you then.