Perhaps the most ambitious of Reagan’s moves as Governor was his role in trying to pass the tax reform via a constitutional amendment known as Proposition 1. Perlstein in The Invisible Bridge summarizes the measure.
[It] included a rollback of the personal income tax rate from 8.3 to 7 percent and a provision that if the state collected more than an allotted amount in any year the surplus would be refunded to taxpayers. It established an emergency fund of not more than 0.2 percent of taxpayer income to maintain government functions—but only the governor could declare the emergency. It also set tax limits for cities, counties, and special districts. Finally, it exempted the wealthy from California tax law’s $10,000 mandatory minimum assessment, and included a rebate for lower-income taxpayers.
Reagan campaigned for the Proposition hard
California’s official nonpartisan legislative analyst A. Alan Post wrote his assessment that there would need to be a $620 million reduction in the next year’s state budget. Reagan accused him of serving the Democratic Assembly Leader’s agenda. After Reagan accused him of this, Post had a number of supporters. Perlstein writes
Post had just been profiled as a model of objectivity and rectitude on the front page of the Wall Street Journal. He had once been, in fact, a registered Republican—then changed his status to “declined to state,” to foreground his nonpartisan scrupulousness. The chairman of the California senate Republican caucus rose to defend him: “Alan Post doesn’t slant figures.” So did the Republican floor leader in the California assembly: “I have never personally been of the opinion he is partisan.” Post appeared before the assembly Ways and Means Committee to patiently explain his statistics-laden seventy-five-page conclusions that over a four-year period Prop 1 would require budget cuts totaling $3.5 billion, and would merely shift the tax burden to localities and property taxes. The governor’s chief deputy director of finance called that “misleading, distorted, and biased.” A shouting match nearly broke out.
Democratic Assembly Speaker Robert Moretti challenged Reagan to debates to question what would Reagan cut to be able to afford the tax cuts. Reagan avoided the debates deftly. Reagan infuriated his opponents. On the one hand, he would get upset about the attack that the tax plan would create deficits saying that it would produce $41.5 billion in 15 years in new money. Then he would claim that the plan was to give the state less money to spend. When Moretti and others would claim that Reagan’s plan would cut bureaucracies or government services, Reagan would say that the emergency funds would protect them but also he didn’t want to protect them, anyway. Reagan tried to pass Proposition 1 as a statute but the state senate held it up. Reagan claimed it was sabotage but as Perlstein writes “it lost a vote in plain daylight, by a margin of 80%, including a majority of his fellow Republicans.”
If Reagan wanted to cut taxes and spending, Jerry Brown pointed out, why had he raised both in his previous seven years as governor, despite having a line-item veto? (He had even authorized a surprise tax increase for the Los Angeles school district two weeks after his initiative made the ballot.) “How can a magic formula, written by invisible lawyers, do what Ronald Reagan has been unwilling or unable to do?”
Ultimately, the measure failed 54-46. Reagan would later reflect that it was a campaign of disinformation that was the reason for its ultimate demise. Based on the track record and the slippery relationship that Reagan had with the truth especially with regards to this issue, it’s hard to believe him. The conservative Heritage foundation also cited a campaign by public employee unions that argued that a state tax and spending limit would lead to local tax increases. So voters were confused and ended up voting against the proposition with the idea that they were going to cut taxes.