Voter Cheat Sheet — Prop. 56 Taxes Your Smokes; Prop. 55 Taxes the Rich

Voter Cheat Sheet — Prop. 56 Taxes Your Smokes; Prop. 55 Taxes the Rich (3)
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Before Angelenos head to the polls on Nov. 8, we are breaking down the ballot into some quick reads to get you up to speed on what's up for a vote. Read more about the other propositions here.

Proposition 56: A $2 Tax on Cigarettes and Tobacco to Fund Health Care

What’s at Stake:

Surprisingly, for as liberal a reputation as California has for taxing things, the state’s levy on cigarettes and other tobacco products is 36th in the nation. And at 87 cents on a pack of smokes, it is around half the tax charged by states such as Texas ($1.41), New Mexico ($1.66), Arizona ($2), Nevada ($1.80) and Utah ($1.70). New York has the highest tobacco tax in the country at $4.35, while Missouri has the lowest at $0.17.

Proposition 56 would increase California's tax on cigarettes, e-cigarettes, cigars, chewing tobacco and so forth by $2. It would bring the tax on cigarettes to $2.87 (the average price of a pack of cigarettes in California would increase to $8.48 from $6.48) and the tax on all other tobacco products to $3.37. The new tax revenue would go mostly to pay for health care services for low-income individuals and families covered by the Medi-Cal program. Supporters refer to it as a “user fee” on smokers to pay for the additional burden that tobacco-related illnesses contribute to the overall health care costs in the state.

Proposition 56 marks another expensive clash of powerful interests seeking to influence the hearts and minds of state voters. As one might expect, the tobacco industry is spending mightily to defeat it. Philip Morris USA and R.J. Reynolds Tobacco Company are the main donors behind No on 56, which has raised a war chest of more than $71 million, according to the California Secretary of State. The main source of funding for Yes on 56 is an alliance of the health care industry that includes hospitals, health plans, doctors, dentists, health care unions and nonprofits, and has collected more than $26 million to pass it.

What It Does:

Proposition 56 would raise more than $1 billion in revenue for health care services, according to the nonpartisan Legislative Analyst’s Office. It also is expected to reduce the number of California's smokers; 12 percent of adults smoke cigarettes and 4 percent “vape” e-cigarettes, according to a 2013 survey by the Department of Health. (The number of e-cigarette users was double the number found in the department’s survey of 2012.) California has one of the lowest adult cigarette smoking rates in the country.

Won't fewer smokers mean the revenue from sales tax will take a hit? Yes, and Proposition 56 would set aside $200 million to compensate the state for what it anticipates will be the loss in the first year.

The measure also would fund $48 million to enforcement agencies to address likely side effects of the measure, such as tax evasion, counterfeiting, smuggling and the unlicensed sale of cigarettes and other tobacco products. The No campaign has criticized 56 for its high overhead costs, but taxing a behavior is complicated (and therefore costly). It entails a Freakonomics-like formula to collect, enforce and monitor the revenue and cover losses in other areas, such as sales tax.

Proposition 56 also would impose an excise tax on the purchase of electronic cigarettes for the first time in California. But the state likely will struggle to tax their online purchase, since e-cigarettes are not covered by federal laws to prevent tax evasion. “As a result, enforcement of state excise taxes on e-cigarettes may be more challenging if consumers purchase more of these products online to avoid the new taxes,” the LAO states.

According to a poll earlier this month by the Public Policy Institute of California, only 38 percent of likely voters said they planned to vote against Proposition 56.

Voter Cheat Sheet — Prop. 56 Taxes Your Smokes; Prop. 55 Taxes the Rich (2)
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Proposition 55: Tax the Rich to Fund the Schools

What’s at Stake:

In 2012, Gov. Jerry Brown convinced voters to approve Proposition 30, a tax hike on the wealthiest Californians. Brown had urged a yes vote in order to prevent $6 billion in cuts to the state budget for schools and social programs. Proposition 30 was sold to the public as an expedient to help the state settle its debt and stabilize financially. The income tax increase was scheduled to end in 2019.

For the past four years, the wealthiest 1.5 percent of Californians have had to pay an income-tax increase of between 1 and 3 percent. The measure has raised about $6 billion a year since it was approved, with about half of the revenue funding education, according to the nonpartisan Legislative Analyst’s Office.

The condition of the state economy has improved in four years, but authorities differ over the extent. In May, the Brown administration released its projections for the next four years, predicting a deficit of $4 billion in 2019. The LAO’s four-year outlook predicts a surplus through 2020. The administration assumed a slower growth in state tax revenue and a faster growth in state spending than the LAO.

“We would characterize the administration’s assumptions as less optimistic than ours but still plausible,” says Ken Kapphahn, senior fiscal & policy analyst with the LAO.

Proposition 55 would extend the income tax on the wealthy for an additional 12 years, through 2030. Proponents say the measure will protect against the return to the kind of devastating cuts made to state education and health care during the Great Recession. The sales tax from Proposition 30 — an increase of 0.25 percent — will expire as planned at the end of the year.

The driving forces behind Yes on Proposition 55 are the California Teachers Association and the California Association of Hospitals and Health Systems. Gov. Brown has said he is neutral.

What It Does:

Proposition 55's tax increase will affect state residents with incomes above $250,000 a year. The Voter Information Guide states that a single person with a taxable income of $300,000 would pay an extra 1 percent, or $370. The tax increases to 3 percent for the highest tax brackets.

The state stands to increase revenue by between $4 billion and $9 billion each year from 2019 to 2030. Roughly half of that revenue would go to education; 89 percent of that would fund K-12 schools and 11 percent would fund state community colleges. The governor would have up to $2 billion a year at his discretion to disburse to health care for low-income people through Medi-Cal and other health programs. Also, the measure pays between $60 million and $1.5 billion a year to debt payments and the “rainy day” reserves.

Who's Supporting It and Why?

Yes on 55 has raised $57 million — nearly all from the California Association of Hospitals and Health Systems ($33.6 million) and the California Teachers Association ($20.3 million). No on 55 has raised a grand total of $3,000. The state Democrats support a yes vote, the state Republicans support a no vote. Kris Vosburgh, executive director of the Howard Jarvis Taxpayers Association, which opposes the measure, says 55 is liable to drive some high-income residents out of the state.

The Yes on 55 Campaign has the edge in the most recent polls. In September, the Public Policy Institute of California polled likely voters and found support at 54 percent.


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