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California tax initiatives test power of populism

By Jim Christie

SAN FRANCISCO (Reuters) - California voters this fall may have the chance to answer a question of deep interest to politicians around the United States: will populist appeals to "tax the rich" resonate more than pragmatic arguments for budget-balancing solutions?

Governor Jerry Brown, a Democrat, has all but staked his governship on a tax hike ballot initiative consisting of temporary increases in sales and income taxes. He has positioned the measure as a practical and necessary move to combat chronic budget deficits in a state where spending on schools and other services has already been slashed.

By contrast, the California Federation of Teachers (CFT), the smaller of two statewide teachers unions, last week got the green light to pursue its own ballot initiative, the "millionaires tax," which would sharply increase state income taxes on those with more than $1 million a year in annual income.

In California, major policy issues often are resolved by putting the matter to the voters in the form of a ballot initiative like one in 2008 that barred gay marriage. The tax ballot initiatives would be put before voters in the November 6 election when they also will vote for president and other offices.

A Brown spokesman calls the governor's measure "a balanced package that has the best chance of passing."

Charles Idelson, a spokesman for the state nurses union, which is supporting the CFT, said: "We have this appalling, Grand Canyon-sized disparity between average people, the working poor, and the wealthy. This is a measure that actually targets the people that have been partying while the rest of the state has been suffering."

Brown and his advisors had hoped to head off any competing measures, on the grounds that multiple choices make it more likely that all of them will fail. Several of the groups considering their own tax-related ballot initiatives have backed away and thrown their support behind Brown.

The CFT and its allies have begun gathering the necessary number of signatures to get their measure on the ballot, and are convinced that a blunt populist appeal is the way to go. At the same time, Molly Munger, a wealthy Southern California attorney who is the daughter of businessman Warren Buffett's business partner Charlie Munger, has not yet decided whether to move ahead with her own proposal.

LABOR MOVEMENT SPLIT

Brown aims to build a broad coalition for his measure and he has won the support of two heavyweights in the state labor movement: the Service Employees International Union, with more than 700,000 members; and the California Teachers Association, with 325,000 members. Brown has also sought the support of business groups, many of which have backed tax increase proposals in the past.

The governor has been campaigning hard for the measure, and polls indicate the public is at least open to the idea.

But the CFT, with 100,000 members, has already gained a key ally for its tax initiative: the 75,000-member California Nurses Association, which helped elect Brown in 2010 with bludgeoning attacks on his Republican rival, technology executive Meg Whitman.

The nurses mercilessly mocked Whitman for her great wealth, dubbing her "Queen Meg" and demonstrating outside her home. Since then, the nurses union has been one of the most prominent labor supporters of the anti-Wall Street Occupy movement.

ASKING MORE FROM THE WEALTHY

California's top personal income tax rate is 9.3 percent - kicking in at $48,029 for individuals and $96,058 for couples - with another 1 percent charged on income of $1 million and up. The state income tax comes on top of federal income tax paid by Californians.

The millionaires tax measure would impose an additional 3 percent tax on income between $1 million and $2 million a year and an additional 5 percent tax on income above $2 million.

Proponents say the hikes would raise up to $9.5 billion in their first year. Sixty percent of the money under the proposal would go to schools and higher education. The rest would go local governments for social and other services, including health programs.

Brown's ballot measure, which resembles a proposal he had pushed hard with the legislature before failing to get the necessary Republican support for passage, also would increase income taxes by up to 2 percent on incomes starting at $250,000.

But Brown's measure would at the same time raise the state sales tax by a half-cent, a point of contention in the state's labor movement as it would disproportionately affect low-income Californians. Both the income and sales tax increases would expire in 2017 under the proposal.

The California Teachers Association is backing Brown's measure despite its sales-tax increase and that fact that it does not specifically earmark the revenues for schools like the other proposal would.

Brown's measure is central to his plan for tackling the state's $9.2 billion deficit. If voters reject the measure, Brown has said another roughly $5 billion in state spending would be cut, including spending on education.

The nurses union, on the other hand, is intent on making a statement with its measure as much as it is on getting dollars set aside for health programs. "We have to begin to restore a just and fair taxation system," Idelson said.

The California Federation of Teachers' Glass dismissed notions that labor would be better served by rallying behind Brown's measure or that voters would be overwhelmed with other options come November, adding, "In case the governor's goes down, we're an insurance policy."

(Editing by Jonathan Weber and Will Dunham)

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