Our View: Proposition 39 shows how direct democracy should work

September 27, 2012 

At its best, California's initiative process offers voters a way to bypass legislators who have become paralyzed by the special interests who fund their campaigns.

Proposition 39 shows how direct democracy should work. The initiative on the Nov. 6 ballot would close a $1 billion corporate tax loophole, one that legislators are incapable of shutting because they are beholden to outside influences.

In 2009, then-Gov. Arnold Schwarzenegger cobbled together votes for a deal that included a $1 billion tax break for companies whose headquarters and most of their employees are located outside California, but sell heavily into the state.

Essentially, out-of-state corporations such as cigarette maker Altria gained the privilege to determine which of two methods of taxation allowed them to pay the least in state taxes, and permitted them to toggle back and forth each year so as to gain the greatest benefit.

No sooner had the measure passed than dissenting legislators sought its repeal.

They failed each time, though one version came close to passing this year. It stalled only after public attention focused on an amendment that would have given Altria a special exemption.

San Francisco hedge fund founder Tom Steyer is providing most of the money for the Yes on 39 campaign. He's among the billionaires who signed the Bill Gates-Warren Buffett pledge promising to leave half his wealth to charity.

Steyer, a Democrat, may be using the measure to raise his profile for a possible political career. But there are worse reasons to promote an initiative, especially one that could do some good in California.

Proposition 39 would achieve a measure of tax fairness. While personal income taxes provide an ever larger share of the state's tax revenue, corporate taxes provide a smaller portion, about 10 percent. That's down from 14.6 percent in 1980-81.

Much of the initiative tracks word-for-word legislation carried last year by Sen. Kevin DeLeon, D-Los Angeles. That's significant because the Legislature's staffers vetted the measure. Propositions don't always get thorough vetting and often end up with major flaws.

If it's approved, the initiative would generate $1 billion a year. Half would go into the general fund, and the other half would fund new energy efficiency programs such as weatherizing public schools, and energy-related job training.

We would prefer that all the money go into the general fund, where it is badly needed.

But the energy earmarking would end after five years, after which the entire amount would flow into the general fund.

No initiative is perfect. But Proposition 39 is a well-reasoned effort to bypass lawmakers who made a mistake by carving the loophole in 2009 and have been unable to rectify that error. Voters should support Proposition 39 on Nov. 6.

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