Why business groups aren’t fighting California’s tobacco and income tax hike initiatives

Reporting from Sacramento —  Four years ago, business leaders financed a multimillion-dollar campaign to oppose an initiative to raise income taxes on California’s highest earners. The same year, the California Chamber of Commerce was featured prominently in television advertisements against a ballot measure to increase the cigarette tax.

Now, with new versions of both the income and tobacco taxes on the statewide ballot, money from the business community isn’t there and neither is the same level of opposition. Instead, many business groups are reluctantly resigned to an extension of the higher income tax rates and, in some cases, are even promoting the cigarette tax hike.

“This isn’t something that we’re taking on for self-interested, bottom-line reasons,” said Micah Weinberg, president of the research arm of the Bay Area Council business group. “We think that stopping youth smoking is an important thing to do.”

Business leaders say their response to the Proposition 55 income tax extension and Proposition 56 tobacco tax increase has buoyed the chances of both measures passing. But they also contend that their positions say more about the specifics of the measures than any fraying of the traditional coalition between Republicans, taxpayer groups and business leaders against tax hikes.

“We absolutely will fight to the death on any future tax increases,” said Rob Lapsley, president of business executive group California Business Roundtable, whose organization is neutral on Proposition 55.

Four years ago, many large business groups supported Proposition 30, which raised the income tax rates of single filers making more than $250,000 a year to between 10.3% and 13.3% of total income through 2018.

Proposition 55 seeks to extend those higher income tax rates through 2030 and is opposed by business organizations, including the California Chamber of Commerce and Bay Area Council — which have flipped their position from the 2012 effort. The groups are critical of the measure’s reliance on the wealthiest taxpayers to fund such a large portion of the budget, as well as the Proposition 30 campaign breaking its pledge that the tax hike would be temporary.

But neither business groups nor anyone else is spending money against Proposition 55, a big change from 2012. Four years ago, the campaign to oppose the tax and support a second, unrelated ballot measure raised $51 million. This time, state campaign finance records show only $3,000 raised by the No on 55 campaign, compared with $56 million from doctor groups, labor unions and others in favor.

Business leaders said a campaign against Proposition 55 would be more difficult to execute than it was four years ago, citing the continued political appeal of a tax on the wealthy combined with the resulting boost to public school spending. It’s also easier, they said, to persuade voters to maintain an existing tax than to raise one.

“I think there was a lot of polling and a lot of people sat down in rooms and said, ‘This is not going to have a positive impact on the economy, but there’s not a lot we can do at this time,’ ” said Gary Toebben, president and CEO of the Los Angeles Area Chamber of Commerce, which took no position on Proposition 55.

One key funder from four years ago who has taken a pass is Charles Munger Jr., a Palo Alto physicist and longtime donor to state GOP causes. Munger contributed just over $33 million to a campaign committee that opposed Proposition 30 and backed an unrelated measure. This year, Munger, who did not respond to a request for comment, has contributed $8 million to sponsor Proposition 54, an initiative requiring all bills to be in print for three days before the Legislature can pass them.

Proposition 56, which would raise the tax on a pack of cigarettes by $2, is the third initiative of its kind since 2006 aiming to increase tobacco taxes. The previous two efforts failed after the tobacco industry spent more than $100 million combined to defeat them.

In the prior campaigns, the opposition of the California Chamber of Commerce served as a well-known independent voice to which tobacco companies could point voters. But the organization declined to take a position on Proposition 56.

Most of the revenue from Proposition 56 would go toward boosting the payments healthcare providers receive for treating low-income patients in the state’s Medi-Cal program. Allan Zaremberg, the chamber’s president and CEO, said his group was torn between its belief that those healthcare payments are too low and its historical reluctance to support tax measures targeting a specific industry.

“They don’t cancel each other out, but they both have merit,” Zaremberg said of the arguments on both sides.

Other large business groups have gone further than the state chamber. Besides the Bay Area Council, chambers of commerce in Los Angeles, San Diego and other cities are also backing Proposition 56.

Toebben, the head of the Los Angeles chamber, said that his members are concerned about rising healthcare costs due to smoking. Beyond that, public opinion has so turned against the tobacco industry that even grocery stores and other businesses that might benefit from cigarette sales don’t want to be associated, he said.

“Sometimes businesses don’t want to be known as supporting smoking,” Toebben said. “They’re happy to provide the products if their customers want those products, but they’re not going to go out of their way to indicate that they’re proponents.”

Without the imprimatur of large business interests, tobacco companies now are wielding the opposition of industry groups, such as the California Manufacturers & Technology Assn., as well as anti-tax and law enforcement organizations in their No on 56 advertisements.

The positions of chambers of commerce shouldn’t be surprising, said Beth Miller, the spokeswoman for No on 56. Hospitals often are key parts of chamber boards and, unlike with the 2012 cigarette tax measure, they stand to benefit from the increase in Medi-Cal revenue should the measure pass, she said.

“Four years ago, members of the business community did not have a financial stake in the revenue from the tax,” Miller said.

Beyond the two tax measures on the state ballot this year, business leaders are warning that they will spend money to combat future proposals.

Many said they were concerned instead about any future ballot measure campaigns to exempt commercial properties from the tax limitations put in place by Proposition 13 nearly 40 years ago.

If that happens, Lapsley said, “they can count on one of the most well-funded opposition campaigns they will have ever seen.”

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