A Post-Midterm Ballot Measure Roundup

As always, our political commentary is non-partisan, as we believe political bias invites investing errors. We analyze politics solely for potential market impact and favor no party, candidate or ballot initiative.

Congressional races hog the spotlight in midterm season, with gubernatorial and state legislature battles garnering just the occasional mention—and rightfully so, in some ways. The balance of power in Washington can substantially influence markets—and your finances—creating winners and losers through policy change. (That is why we think increased gridlock has such a long history of positively impacting stocks.) But this isn’t the only way elections can impact your finances. While ballot measures generally see far less attention, city, county and state votes on taxes, housing, schools, regulations and the like can directly affect your life—and pocketbook. In that spirit, here is a roundup of various ballot measures voters gave a thumbs-up or thumbs-down to last Tuesday—particularly those potentially affecting voters’ finances.

Many of these were tax measures. In California—home of the most expensive gas in the contiguous United States^[i]—voters rejected a measure that would have overturned last year’s 12 cents-per-gallon gas tax increase and required their approval for any future fuel taxes and vehicle fees. Conversely, Missouri and Utah voters said no to gas tax increases. Further up the West coast, Oregon turned down a constitutional amendment that would have banned “grocery taxes” on the sale of food and drink. To be clear, there are no such taxes currently and we aren’t aware of any plans to impose them. We guess it was meant to be a preemptive strike. In Washington, voters approved a similar measure—which doesn’t rescind Seattle’s existing soda tax, though—and rejected a carbon tax proposal.

Elsewhere, Coloradans declined to replace their current flat income tax with a progressive one, which would have kicked in at incomes of $150,000 or greater. Combined with a corporate tax hike (which also failed), some estimate the constitutional amendment would have collected approximately $1.6 billion in new revenue.^[ii] (Although these estimates are always a bit dodgy.) Voters in other states went further, placing limits on their legislatures’ ability to raise taxes in the future. An amendment to North Carolina’s constitution lowering the cap on state income tax rates from 10% to 7% passed. Detractors argued this was pointless, as the current rate is 5.5%—but also bad, because it precludes future hikes (unless, of course, voters raise the cap again). Proponents would probably argue that is a feature, not a bug. Meanwhile, in another move we presume is a preemptive strike, voters in Arizona approved a measure banning services taxes (there are none presently). Floridians passed a constitutional amendment requiring a supermajority—two-thirds of the state legislature—to enact any new tax increases, while Oregonians rejected a similar initiative.

In interesting city ballot initiative news, San Franciscans voted to tax large companies in the city to fund programs for the homeless. We mention this because it is the latest in a parade of cities adopting—and then frequently cancelling—such taxes. Seattle passed and hastily rescinded one aimed at Amazon. Cupertino—home to Apple—put a proposed “head tax” (a per-employee charge) on ice in August. On the other hand, residents of Mountain View—Google’s domicile—approved one last Tuesday. While they aren’t large enough to dent affected firms’ profits, they are often swing factors in local politics and could influence Tech companies’ decisions about where to add headcount.

Californians also turned down a proposition that would have given local governments more freedom to enact rent control policies. Though intended to boost low-income residents’ access to affordable housing, most economists view rent control as a constraint on housing supply that (among other shortcomings) pushes up prices and incentivizes property owners to build high-end units. Both outcomes, in our view, help existing tenants at the expense of the groups rent control targets.

One other strain of ballot measure garnered attention in the financial press: Efforts to legalize cannabis in some form or another. Missourians and Utahans legalized medicinal marijuana, Michiganders legalized recreational marijuana and North Dakotans turned down the latter. Some see November 6 as a banner day for cannabis stocks—particularly given Attorney General Jeff Sessions’ departure the next day.^[iii] The AG hadn’t looked kindly on state legalization efforts. But as Christopher Wong explained on these pages in April, a hazy regulatory environment—weed is still illegal at the federal level—seemingly remains an underappreciated negative for (typically small or microcap) pot-related stocks. Moreover, established cigarette and alcohol producers’ superior infrastructure and resources may better position them to capitalize on cannabis’s growing popularity, in our view.

All told, residents of 37 states voted on 155 measures last Tuesday—democracy in action! Our primary focus here at MarketMinder is necessarily on national—even global—events most of the time, as those carry the most weight for global stocks. But local stuff matters too, especially at a personal-finance level. Those concerned with how the government is impacting their finances would do well to stay apprised—and carefully read—ballot measures come the next vote.