Gavin Newsom Finally Finds a Tax Increase He Doesn’t Like

The initiative is being bankrolled almost exclusively by

Lyft,

the San Francisco-based ride-share company, which has spent $45 million in support. Lyft’s involvement requires some explaining, though it doesn’t make complete sense.

Democrats in 2018 enacted legislation requiring the California Air Resources Board, known as CARB, to set out a plan to electrify the fleets of ride-hailing services such as Lyft and

Uber.

The law didn’t establish firm electric-vehicle targets for the companies.

In summer 2020 Lyft and Uber tried to win favor with liberals amid a ballot fight with labor unions by pledging a full transition to electric vehicles nationwide by 2030. How exactly they planned to achieve that goal was unclear, since their drivers own their own cars. Most don’t drive for the companies full-time or earn enough to buy an EV. The companies would probably have to mandate that their mostly part-time and lower-income drivers swap their gasoline-powered cars for more expensive EVs—or kick them off their platforms. The latter would increase passenger wait times and fares, which would lead to fewer customers using their services.

Their announcement backfired. CARB mandated in May 2021 that electric vehicles make up 90% of ride-hailing miles by 2030, up from about 2%. Lyft complained the mandate “could economically harm low- and moderate-income drivers” and demanded more government handouts to help the company comply. The $12,000 in federal and state subsidies for buying an electric car wasn’t enough.

Uber has a stronger balance sheet and more diversified business owing to its food-delivery service. So it might be able to provide additional EV subsidies for its drivers. But for Lyft, which is fast bleeding cash amid high driver turnover, the mandate could trigger a business death spiral in one of its strongest geographic markets.

Hence Lyft’s ballot campaign to soak the rich. Proposition 30 would raise the state’s top income-tax rate on Californians making more than $2 million to 15.05%—the highest in the country—from 13.3%. About 80% of the $3.5 billion to $5 billion in revenue annually would fund electric vehicles and charging stations—mostly for lower-income drivers—and the other 20% would go to wildfire mitigation. The latter is intended to broaden public support.

Lyft helped progressive regulators take the company hostage, and now it’s pointing a gun at the heads of the state’s wealthy denizens. The bizarre thing is that Lyft probably wouldn’t get much of a lift from Proposition 30. It’s unlikely that even bigger subsidies would induce part-time drivers to replace their gas-powered cars before they break down.

Proposition 30’s primary beneficiary would be auto makers, many of which are struggling to meet the state’s aggressive electric-vehicle mandate. It’s not implausible, then, that Lyft could be a stalking horse for

General Motors,

which was an early investor in the ride-hailing company and has been rumored to be interested in buying it.

The corporate welfare for auto makers may explain why the state’s Chamber of Commerce is taking a back seat in the ballot fight. Most of the $13.7 billion that has been spent to oppose Proposition 30 has come from wealthy Californians, including many Newsom donors such as

Netflix

CEO

Reed Hastings,

Zynga founder

Mark Pincus

and Pisces Inc. managing director

Robert Fisher.

The other major force of opposition is the California Teachers Association, which is furious that none of the revenue generated by Proposition 30 would go to schools. It may also realize that the tax hike could drive away wealthy taxpayers, on whom the state depends to finance schools. The top 0.5% of taxpayers in California pay about 40% of state income tax.

A study this year by Stanford economists found that the 2012 income-tax hike on high earners spurred many to flee the state or modify their behavior to reduce the income tax they pay. As a result, the tax hike raised 55.6% less than would have been expected over the first three years it was in effect. Notably, out-migration was highest among taxpayers earning more than $2 million—those who would get slammed by Proposition 30. The teachers unions not only won’t benefit from the measure; it could cost them.

The teachers union is the most powerful Democratic special-interest group, and Mr. Newsom knows it. If he hopes to win the 2024 Democratic presidential nomination, he will need the union riding shotgun. Hence his cutting ads for the Vote No campaign. An Oct. 4 Berkeley IGS poll showed 49% of likely voters supporting Proposition 30 and 37% opposing it.

Maybe one reason Mr. Newsom is running campaign ads touting California’s cultural progressivism in zero-income-tax states such as Florida and Texas is because that’s where much of his wealthy liberal donor base has moved. If Proposition 30 passes, he will be spending so much time fundraising out of the state that he may only have to file his taxes as a part-time resident.