California’s “Temporary” Taxes Aren’t So Temporary
How long is a temporary tax supposed to last? A year? Five years? Ten years? Apparently, in California, the answer is: until we can convince you to make it permanent. Or, until our state overspends and needs to secure a new permanent source of revenue!
That's exactly what we're facing in this election with Proposition 3. Today we're going to talk about how a temporary tax increase became a permanent proposal, why the state wants to keep it, and why I think we should say no. Plus, a few more notes for you on the infamous wealth tax, because there are just too many arguments against it that I can’t stay silent on!
What Is Proposition 3?
Proposition 3 has been described as the “ideological cousin” of the wealth tax.[1] At its core, it is about maintaining higher income-tax rates on California’s highest earners – and, more importantly, making those higher rates permanent in our state Constitution.
So, what exactly do I mean by that? To understand Proposition 3, we have to go back to 2012. That year, California voters passed Proposition 30, which temporarily increased the state’s personal income-tax rates on higher-income taxpayers. The measure was presented as a temporary solution to the state’s budget problems, with the additional revenue helping prevent major cuts to public education and other state programs.[2] The income-tax increases were scheduled to expire after the 2018 tax year.
Then came Proposition 55 in 2016. Rather than allowing those higher income-tax rates to expire, voters approved Proposition 55, extending them for another twelve years, through 2030. The official voter guide described the measure exactly that way: it extended the temporary income-tax increases approved in 2012 through 2030.[3]
And that brings us to Proposition 3 today. Under current law, those higher income-tax rates are scheduled to expire at the end of 2030, meaning the lower rates would take effect in 2031. Proposition 3 would change that. It would make the higher rates established by Proposition 30 permanent instead of allowing them to expire.[4]
Now, technically, Proposition 3 does not create a brand-new income tax or increase the rates taxpayers are paying today. If it passes, your tax bill wouldn't suddenly go up the day after the election. What it does is eliminate the expiration date. So, to be clear, we are not being asked whether California should raise these taxes again, we're being asked whether these taxes should ever be allowed to go away.
For more than a decade, California voters have repeatedly been told that these higher tax rates were temporary. Proposition 30 created them, proposition 55 extended them, and now Proposition 3 asks voters to make them permanent. That is what Proposition 3 would do.
The Ideology Behind Proposition 3
Why is this ideologically aligned with Proposition 40 (the wealth tax)? At first glance, these two propositions look pretty different. Proposition 40 would impose a one-time 5% tax on the net worth of California billionaires; on the other hand, Proposition 3 deals with income taxes and would make permanent the higher income-tax rates paid by the state's highest earners.
So, what do these two measures have in common? At the heart of it, they share the same underlying philosophy about who should bear the burden of funding government.
The argument behind Proposition 40 is essentially that California has vital services that need to be funded, and that the people with the greatest amount of wealth should be asked to provide a disproportionately large share of the money to fund them.[5] Proposition 3 takes that same basic idea and applies it to income. Proposition 3, in effect, says that we should continue taxing California's highest earners at higher rates so the state can continue funding education, healthcare, and other public services. The idea is that when government needs more money to maintain the services it provides, the solution is to look upward on the economic ladder and ask the people at the top to pay more.
Why Should We Reject This Ideology?
Now, it will be no surprise to you that I reject this ideology. But why do I reject it, and why should you?
Let's start with the practical argument. California already has one of the most progressive income-tax systems in the country. We don't need Proposition 3 to introduce the idea that wealthy Californians should pay more, because we already have that system in place!
California's top marginal individual income-tax rate is 13.3% - the highest state income-tax rate in the country.[6] On top of that, our tax system is so heavily weighted toward high earners that the top 2% of California taxpayers provide roughly half of the state's personal income-tax revenue.[7] Think about that for a second – the top 2% of California’s taxpayers are paying nearly 50% of the income taxes in our state. That is insane.
And yet, even with all that funding by a very small minority of our population, look at where we are. California's 2026-27 budget projects approximately $251 billion in General Fund spending. Including special funds, total state spending is about $347 billion, and when federal funds are included, total spending reaches roughly $539 billion.[8] So, if the solution to increasing expenses is to tax the rich more, then the question becomes – how much more will we need to tax those who are already carrying the burden of paying for the majority of our state’s expenses?
Clearly, our state’s system, which relies heavily on high-income taxpayers, hasn't eliminated budget problems or spending pressures. Instead, every time they need more, they will just complain that the “rich” are not paying enough. That is an ever-moving target, and one that does not address bigger, underlying problems.
In fact, I would argue there is actually a major downside to relying so heavily on high earners: the revenue is incredibly volatile. The Legislative Analyst’s Office has found that California's income-tax revenue is unpredictable.[9] That's because a lot of the state's tax revenue comes from wealthy people, whose income often comes from things like investments, business profits, and stock gains. Those things can be great one year and drop dramatically the next. Because California taxes those higher incomes at higher rates, when the rich make a lot of money, the state brings in a lot of revenue – but when their income drops, California feels that drop too.
The LAO's 2026 revenue outlook says the state's recent surge in income-tax collections has been driven largely by the AI and stock-market boom, and it simultaneously warns that those revenues are unlikely to be sustainable. It projects structural deficits of roughly $35 billion annually beginning in 2027-28 under its fiscal outlook.
What this tells us is that if you build a government that depends increasingly on squeezing more and more revenue from the people whose incomes are the most volatile, you don't create a stronger government, but rather a more unstable one. So, just practically, “taxing the rich” more and more does not benefit California in the supposedly easy way that politicians and others who tout this as the solution to every budget crisis make it sound like it is. And of course, it will never come to an end, because as spending increases, they will never be satisfied with the amount of revenue they are generating.
But even beyond the practical, this ideology is morally wrong as well. Like we talked about with the wealth tax a few weeks ago, someone having a lot of money does not mean their money somehow becomes less legitimately theirs and is now owed to the state by default. There is no arbitrary level of success where the government now has a right to take what you have earned or accumulated. “They have a lot, so who cares if government takes more” is not a principle I think we should build public policy around.
Before we ask a small group of taxpayers to permanently fund more government, we should first ask whether government has earned the right to spend more. In California, we have to be honest that the answer is a resounding no!
I know I am a broken record on this, but California isn't a state that is starving for money. The state's General Fund budget has grown enormously. General Fund spending has increased by more than $100 billion since 2019-20,[10] and under the current 2026-27 budget California is spending roughly $251 billion from the General Fund alone.[11] That is a quarter of a trillion dollars from the General Fund in a single year. Yet, we're being told in Proposition 3 that the solution is to make a tax increase permanent so that we can continue bringing in even more money.
But just as I already asked…where does it end? California has had to deal with budget problems year after year because spending continues to grow faster than the revenue needed to sustain it. That means the problem actually isn't solved by giving our state another revenue stream to pull from. If you give government more money without addressing the reason it keeps running into budget problems, you haven't solved the problem, you have just given the problem more money!
This is like giving someone who is in debt, who is addicted to spending money they don’t have, another credit card to help them pay off their expenses. Rather than cleaning up their spending to stop outpacing their income, they will abuse the credit card to purchase MORE things they cannot afford, then turn around and ask for another credit card. The California government is that spending addict.
Just at what happened in this year's budget. Even with revenues surging, the 2026-27 budget still includes $5.7 billion in new discretionary General Fund spending. About $700 million of that represents new ongoing commitments that will become part of the state's baseline costs in future years.[12] That's the cycle I stringently object to!
Fiscal responsibility means recognizing that taxpayers have a limited amount of money, and government should have to make choices about how to use it. That is not easy – it’s incredibly difficult! But it’s the job of good government. If California wants more of our money, California should first demonstrate that it knows how to responsibly spend the money it already has. Right now, I don't at all see how it has made that case.
So no, I don't believe Proposition 3 has earned my vote, or yours. The ability to tax people more because they “have the money” is NOT the same thing as a worthy justification to spend that money.
And Speaking of the Wealth Tax…
Now, before we wrap up this episode, I have mentioned the wealth tax quite a bit throughout. And I know…I have already done two previous episodes about the wealth tax, so if you want to hear the arguments I've made against it, you can go check those out! But the Hoover Institution at Stanford recently shared some of its research on Proposition 40 and the proposed wealth tax with me, and I found some of the data absolutely stunning. So, naturally, I thought it was something you needed to know about – which means we have to spend just a few more minutes talking about a couple of additional arguments against the wealth tax!
So, here's what I found particularly interesting. First, the proponents of the wealth tax promise an enormous $100 billion in revenue! But Hoover's researchers estimate the tax would actually only bring in around $40 billion over five years.[13] So that is significantly less than what is being promised. As we talked about last week with California Energy Commission’s promises about cost savings under their new tire regulations – proponents of these actions often overpromise and underperform. That is happening with Proposition 40. You are being promised something that researchers are saying will not materialize.
AND, what’s even worse, is that the $40 billion they are projecting the wealth tax will bring in is before accounting for the income-tax revenue California would lose if billionaires choose to leave the state in response to the tax. Why is this important? Because billionaires are already leaving the state! Nearly 30% of the tax base has already left California, even before the measure qualified for the ballot.[14] That is HUGE!
Once you account for the income-tax revenue California will lose from those departures, the estimate of the fiscal effect Proposition 40 will actually have on our economy is…very concerning, to say the least. Hoover calculates that the wealth tax could have a negative net present value of $24.7 billion.[15] In other words, according to their model, California could actually LOSE more money than it gains from this tax! Talk about overpromising.
AND there's another part of this that I think is really important! This ties directly back into Proposition 3, as we just discussed. We're constantly hearing this wealth tax described as a one-time tax. But Hoover's researchers point out that the problem with using a one-time tax to pay for ongoing government spending is that, eventually, the money runs out.[16] If California uses a one-time $40 billion to pay for expenses that keep coming every year, what happens when that $40 billion is gone?
Well, you have the same spending problem you had before – except now you've established that taxing billionaire wealth is on the table! Proposition 40 would change the state Constitution's treatment of taxes on intangible personal property, creating a framework for future wealth taxes. This creates an incentive structure and legal avenue for future lawmakers to come back for another wealth tax – just as we are SEEING happen in real time with Proposition 3!
There is a lot more that could be said about the wealth tax and Proposition 3, so I will link all of Hoover’s resources below if you want to dig deeper. They are also putting out more and more information on the propositions coming up this election, so if you want to actually understand what you're voting on before you get to the ballot box, I highly recommend checking out their California Decides resources. I'll have everything linked below!
How to Vote in November
At the end of the day, I think Proposition 3 comes down to a question of priorities. Do we keep asking the same small group of Californians to fund more and more government, or do we finally ask government to live within its means?
Someone being successful should not make them a bottomless source of revenue. And the answer to California's spending problem is not finding new ways to tax the people who can “afford it.”
So, when you get to Proposition 3 on your ballot, I'm voting NO. California doesn't need another permanent tax increase. It needs to learn how to spend the money it already has.
References:
[1] Walters, Dan, “Opinion: 5 Propositions Ask Californians to Decide Who Should Pay New Taxes,” Times of San Diego, August 28, 2026, https://timesofsandiego.com/opinion/2026/08/28/five-propositions-ask-californians-decide-who-should-pay-new-taxes/.
[2] Legislative Analyst’s Office, “Proposition 30: Temporary Taxes to Fund Education. Guaranteed Local Public Safety Funding. Initiative Constitutional Amendment.,” July 18, 2012, https://lao.ca.gov/ballot/2012/30_11_2012.aspx.
[3] California Secretary of State, “Proposition 55 | Official Voter Information Guide,” November 8, 2016, https://vigarchive.sos.ca.gov/2016/general/en/propositions/55/.
[4] Legislative Analyst’s Office, “Proposition 3 [Ballot],” November 3, 2026, https://lao.ca.gov/BallotAnalysis/Proposition?number=3&year=2026.
[5] Walters, “Opinion: 5 Propositions Ask Californians to Decide Who Should Pay New Taxes.”
[6] Tax Foundation, Taxes in California, October 30, 2025, Tax Foundation, https://taxfoundation.org/location/california/.
[7] Legislative Analyst’s Office, “Proposition 3 [Ballot].”
[8] California Legislative Analyst’s Office. “The 2026-27 Budget: Overview of the Spending Plan,” August 26, 2026. https://lao.ca.gov/Publications/Report/5197.
[9] Legislative Analyst’s Office, “California’s Strong Revenue Trends Mask Looming Budget Risk,” January 23, 2026, https://lao.ca.gov/Publications/Report/5104.
[10] California Legislative Analyst’s Office. “Understanding $100 Billion in Spending Growth: Causes and Fiscal Implications,” April 28, 2026. https://lao.ca.gov/Publications/Report/5176.
[11] Republican Caucus. “2026-27 Enacted Budget: Initial Summary | Republican Caucus,” August 28, 2026. https://src.senate.ca.gov/content/2026-27-enacted-budget-initial-summary.
[12] “The 2026-27 Budget: Overview of the Spending Plan.”
[13] Jaros, Benjamin, Joshua Rauh, Gregory Kearney, John Doran, and Matheus Cosso. “The Net Present Value of the Billionaire Tax Act: An Assessment of the Fiscal Effects of California’s Proposed Wealth Tax.” Hoover Institution, March 4, 2026. https://www.hoover.org/research/net-present-value-billionaire-tax-act-assessment-fiscal-effects-californias-proposed.
[14] Ibid.
[15] Ibid.
[16] Rauh, Joshua, Benjamin Jaros, Daniel Heil, and Tom Church. “New Hoover Paper Challenges Fiscal Rationale for California Billionaire Wealth Tax.” Hoover Institution, May 27, 2026. https://www.hoover.org/new-hoover-paper-challenges-fiscal-rationale-california-billionaire-wealth-tax.
