California Tax Battle About More Than Semantics: New at Reason

Republicans in California voted for a tax hike, but don’t call it that. Steven Greenhut reports:

When is a tax increase not a tax increase?

The issue centered on a measure proposed by Gov. Jerry Brown (D) and the state’s Democratic leadership dealing with managed-care organizations (MCOs). Currently, the state imposes a tax on managed-care organizations that participate in California’s Medi-Cal program that provides health care to poor people.

But the Obama administration rejects that approach and insists the California government tax all MCOs, or lose more than $1 billion in federal reimbursements. The MCO plan would increase the tax across the board in order not to leave federal money on the table. It would reduce other taxes on health organizations, thus leaving the tax-hike question unanswered.

In 2010, California voters approved Proposition 25, which allows the Legislature to pass a budget with a simple majority vote. But the majority still needs a two-thirds vote for tax increases. The same year, voters also approved Proposition 26, which helped answer a similar question to the one being debated right now: What is a tax hike? Previously, a simple majority was needed if a tax package was revenue neutral. Prop. 26 required a two-thirds vote on any bill that raised anyone’s taxes even if other taxes were reduced at the same time.

Republican votes were therefore needed on this MCO tax plan.

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