California midterm elections will be held on November 3, featuring not only the selection of state and federal officials but also votes on 14 statewide ballot propositions. These propositions cover issues like housing, public debt, income tax, wealth tax, voter ID verification, local taxation, and environmental reviews.
At a financial seminar held by the Chinese American Association of Southern California on September 20, lawyer Deng Hong introduced the ballot propositions for this year’s California election. He emphasized that these policies involving government finances, housing, and tax systems are closely related to people’s lives and family finances. Voters are encouraged to not only understand the surface intentions of the propositions but also delve deeper into questions like “where does the money come from, how will it be implemented, and who will bear the long-term costs,” to assess the potential impacts on individuals and society.
Some key considerations include the source of funding and costs: Are the propositions funded through “additional tax revenue” or “issuance of public debt”? Issuing public debt implies that the state government’s General Fund will need to be utilized over the next few decades to repay principal and interest.
Market Mechanisms vs. Government Intervention: Do the policies truly address supply-side bottlenecks, or are they merely subsidizing demands through government funds?
Long-term Economic Effects: Will increased taxation lead to the outflow of businesses and high-tax base populations, thus affecting the overall fiscal health?
Actual Beneficiaries: Is there a discrepancy between the targeted beneficiary groups in policy promotion and those who actually receive resources after administrative implementation?
Affordable housing in California is a crucial topic in this election. Proposition 1 authorizes the state government to issue $11.25 billion in general obligation bonds for various housing programs like multi-family homes, veteran mortgage support, supportive housing, preservation of existing affordable housing, and assistance for first-time homebuyers. State government analysis estimates that if passed, servicing the debt will increase state government spending by about $500 million to $600 million annually, for approximately 25 years.
Deng Hong mentioned that while the intention of housing policies is to assist the public, voters should still pay attention to how much public funds actually reach the target groups and the administrative and execution costs involved. He suggested that besides government funding, consideration should also be given to increasing participation from the market and private builders to boost housing supply.
Proposition 37 authorizes the California Housing Finance Agency (CalHFA) to issue up to $25 billion in revenue bonds to provide fixed-rate loans to middle-income homebuyers meeting certain conditions, with a maximum assistance of 17% of the qualified new home purchase price. The bonds will be repaid by the homebuyers’ mortgage payments, rather than directly by the state government. State government analysis indicates that this proposal will not increase direct costs for the state or local governments.
While Proposition 37 differs from conventional public debt repaid from the state’s General Fund, Deng Hong highlighted the importance of observing whether governmental involvement in housing finance can effectively link to increased housing supply and the associated long-term financial risks.
Proposition 45 involves the California Environmental Quality Act (CEQA), aiming to expedite environmental reviews for projects like housing, transportation, water supply, healthcare, education, and some clean energy projects. The initial costs of implementing the new procedures could reach tens of millions or even over a billion dollars annually, and the long-term fiscal impact remains uncertain.
Shortening unnecessary administrative processes may help lower construction costs, expedite housing supply, and strike a balance between development efficiency and environmental protection, which is a key challenge during policy implementation.
On the tax front, Proposition 3 seeks to permanently maintain the current higher income tax rates for high-income individuals. Originally set to expire in 2031, this proposition, if passed, will extend the existing rates. These rates currently apply to individuals with annual incomes exceeding around $371,000 (2025 standard, threshold adjusts with inflation), and the state government estimates an annual income tax revenue of about $5 billion to $15 billion.
Proposition 40, a notable issue in tax reform, focuses on a “wealth tax.” According to official data, this proposition will impose a one-time maximum 5% wealth tax on individuals and trusts with assets exceeding $10 billion, covering specific assets like businesses, securities, artworks, collections, and intellectual property; real estate and some retirement assets are excluded. 90% of the tax revenue will be allocated to healthcare, while 10% will be used for food aid or education-related projects. State government analysis predicts that this tax could generate billions of dollars in revenue over the years but might also lead to a reduction of less than $1 billion annually in income tax revenue from millionaires for the state government.
Deng Hong mentioned that besides targeting high-net-worth individuals, wealth taxation raises issues of asset valuation and tax planning. Real estate, stocks, and corporate equities may have high market values without an equivalent cash flow readily available for tax payments.
Taxing assets rather than “cash flow” poses challenges in asset valuation (e.g., stocks, unlisted equity in businesses, and real estate, which lack immediate liquidity). Moreover, excessive taxation could prompt the affluent population to leave California, potentially eroding the state’s base for regular income and business taxes in the long run. Therefore, evaluating wealth tax requires not only short-term revenue considerations but also observations of long-term economic and demographic impacts. However, the actual behaviors and economic effects depend on policy implementation and taxpayers’ responses.