Tax Vs. Facts: An Election Story

A proposed tax increase meets a small but determined band of opponents.

Thursday, December 1, 2022 5 min read By: David R. Henderson

Many Americans resonate to the heroic theme of Frank Capra’s 1939 movie about politics, Mr. Smith Goes to Washington. In it, newly appointed US senator Jefferson Smith, played by James Stewart, goes up against a well-funded group of people who want one of their pet projects paid for by the US government. Smith wants the government to pay for his more-modest project on the same land, but he also wants to collect from boys around the country and pay the government back. Of course, given that Capra directed it, Senator Smith triumphs. But even most of us who love that story don’t find it that realistic. We’re used to well-funded interest groups prevailing in the political process, especially when they’re up against a badly funded, small group of citizens.

That’s why the outcome of a Monterey County election on November 8 was so satisfying. It provided reassurance not only that sound economic thinking could sometimes prevail over political messaging but that there’s still great value in public debate—even when taking a stance might seem hopeless.

A well-funded group had put a proposal on the ballot, Measure Q, that would have levied an annual $49 per parcel (of land) in Monterey County for ten years. The money would go to child care. In early August, when I read the proposal, I just knew that almost all the major players in the county would favor it or, if they didn’t, would stay silent. Who would oppose a subsidy “for the children”? But I also believed that it was a bad subsidy. Should taxpayers pay for other people’s child care? And should they be taxed to pay for an ill-defined and relatively open-ended subsidy for which there was close to zero accountability? I wanted to write a ballot argument against Measure Q. I didn’t think opponents of the measure would win, but even so it was important to offer voters an argument against the tax increase rather than a blank page in the voter guide. I won’t keep you in suspense. We did win. Moreover, our side was outspent by approximately 600 to 1.

The California Way of Voting

First, some important details and background. There are two pertinent facts about California elections that may not apply elsewhere.

The first has to do with the percent of votes needed for a tax measure to pass. Normally in California, when a measure to increase taxes earmarks the tax revenue for a particular use, the measure must pass by a two-thirds vote. That makes sense. If the funds are earmarked, a group that badly wants the money could turn out its voters and get a majority, especially in an off-year election. The idea behind the two-thirds requirement is presumably to protect a minority who might object.

The second fact is about ballot arguments. In California, both proponents and opponents get to write ballot arguments and rebuttals and the government publishes a voter guide containing the exact statement of the measure being voted on, an “impartial analysis” of the measure, a statement of the fiscal impact of the measure, an argument in favor, a rebuttal to that argument, an argument against, and a rebuttal to the argument against. I put “impartial analysis” in quotes because the analyst is typically a government official who might have his or her own ax to grind. In my experience of reading these analyses for over thirty years, though, the impartial analyst usually does a decent job.

A Lower Threshold

When I read that Measure Q would pass if it received only 50 percent plus one vote, I thought there had been a misprint. In early August, I e-mailed Mary Adams, the member of the Monterey County Board of Supervisors who represents my district. I asked her if there had been a mistake. Didn’t a measure that earmarked tax revenues for a particular use have to pass by a two-thirds vote? Her executive assistant, Susan Moore, answered no, explaining that under a ruling by California’s Supreme Court, citizen initiatives would pass if they received only a simple majority of votes in favor.

My heart sank. Along with a retired lawyer friend, I had written many arguments against local tax increases whose funds were earmarked, and we usually won because we needed only one-third of the voters plus one to vote against the measures. I had no real hope of getting 50 percent plus one to vote against a measure that, let me remind you, was “for the children.” Still, I remembered how demoralizing it was to open a voter guide, see an argument in favor of a tax hike, and see only blank pages where there should have been an argument against. Taxpayers needed to see that someone was willing to challenge a proposed tax increase. Some voters, seeing no argument against, might say to themselves, “I guess there must not be a good argument against this tax increase.”

The Argument Against

I made three main points. First, because this was the same tax on each parcel, and because the value of people’s residential land was positively correlated with their income—the person in King City, a relatively low-income area, would pay the same as the person in high-income Pebble Beach—this would be a regressive tax.

Second, the initiative was vague about how the money would be spent. It listed so many possible uses that one could not be sure which particular uses would be emphasized.

Third, although the advocates stressed that there would be an oversight committee to monitor spending, the details showed that the oversight committee would have the power only to recommend, not to veto or dictate.

I enlisted four other signers, and away we went. One of my allies, a local Republican activist named Rosemarie Barnard, wrote the rebuttal. (You can find the arguments and rebuttals here, under Measure Q.) One thing I’ve noticed over the years is that rebuttals rarely rebut. They typically make an argument that ignores, to some extent, what the other side said. Both those who “rebutted” my argument and my allies who “rebutted” the argument in favor stuck with this tradition.

A Well-Funded Juggernaut

Early on, I told my allies that we were almost sure to lose. if we got somewhere between 40 and 42 percent against Measure Q, I said, that would be a victory, and would be a shot across the bow of future tax increasers. We had few funds to put towards the campaign and we knew that the other side was well-funded. In particular, we later learned, a Los Gatos–based charity, the Heising-Simons Action Fund, donated $250,000 to the pro-Measure Q cause. The fund is named after Mark Heising and his wife, Liz Simons. Their various funds, and they personally, have donated millions of dollars to various causes and to the election campaigns of Democratic officeholders, including Joe Biden. Overall, donations to the pro–Measure Q side totaled just over $600,000.

Moreover, as we also learned from various mailers in September and October, much of the local establishment supported the measure. All five members of the Monterey County Board of Supervisors supported the tax. So did many local mayors. Organizations supporting the tax included not just Monterey County Democrats, a powerful organization in a heavily Democratic county, but also the Salinas Valley Chamber of Commerce and the Monterey Peninsula Chamber of Commerce. In October, I even received a letter from the Monterey Peninsula Taxpayers Association (MPTA) urging its members to vote Yes on Q.

Why did these organizations support it? I have only a guess. The chambers of commerce represent businesses in the area. Even the MPTA, which I had quit over its support for a tax increase two years earlier, seems to be run by local business interests. Their big fear, which I think is justified, is that local governments will increase the sales tax. So they follow the short poem that the late US senator Russell B. Long, an important member of the Senate Finance Committee, once stated as the motto that animates much of support for, or opposition to, tax increases: “Don’t tax you, don’t tax me, tax that fellow behind the tree.”

And what did we spend? One friend, a local Libertarian Party activist named Lawrence Samuels, spent about $600 on a hundred signs saying “No New Taxes: No on Measure Q.” Rosemarie Barnard spent about $375 printing up a few hundred handouts with bullet points against the increase. That’s a total of just under $1,000. We were outspent 600 to 1. Various people wrote letters to the two local weeklies and to the Monterey Herald, the local daily newspaper. Rosemarie wrote an analysis of the measure that the local Republican Party sent to a few hundred people. I wrote a short piece in a biweekly called the Pacific Grove Press. That was it.

By contrast, when I clicked on YouTube all through October, often the ads that popped up were very professionally made thirty-second ads in favor of Measure Q. 

At the same time, though, debate was occurring on social media. Chris Kramer, a friend and ally who follows the Nextdoor social network more closely than I do, told me that people were quoting my argument that the tax was regressive. Rosemarie Barnard had told me that most people wouldn’t understand what a regressive tax is. I had more confidence than she had, but it later occurred to me that their understanding of economic theory might have mattered less than I had thought. The word “regressive” sounds, well, regressive. Many people call themselves progressives. What group of people go around calling themselves “regressives”?

One Argument I Discouraged

People are often tempted to argue against a tax increase by saying that a substantial portion of a tax will be passed on to consumers. This makes sense for, say, a sales tax on cigarettes because a sales tax increase in a particular state would raise the cost to those who supply cigarettes to that state and discourage shipments to that state. With a lower supply, the price paid by consumers is higher.

But does that same reasoning apply to a tax on land? Many of my allies thought it did, but, using some basic economics, I think I persuaded some of them that it doesn’t apply. I argued that even if such a tax discouraged house building, that discouragement would be minimal because what really discourages house building in coastal California are various state and, especially, local regulations. So the tax’s effect on rents would be minimal. Moreover, the tax is on land whether developed or not, so it wouldn’t discourage building at all and wouldn’t reduce the amount of land because the amount of land is fixed. With no reduction in the supply of land, the price of land doesn’t change: the people who lose are landowners.

The November Surprise

While watching the nonexistent “red wave” on TV with my wife on election night, I received a text from Rosemarie Barnard. It showed a screen shot of the vote count. I gasped because it showed that 41 percent did go to one side—but contra my predictions of defeat, that 41 percent went to the Yes on Q side. We had won, and by a large margin.

Even as I write this, the votes are still being counted. But the results have held up. And to their credit, the pro-Q side immediately conceded defeat.

Maybe Senator Jefferson Smith was on to something.