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California Governor Brown Adds Another Measure to the Mix of Tax-Hikes Headed For 2012 Ballot

by CORY EUCALITTO | December 5, 2011

Unable to extend higher taxes in the 2011 legislative session, California Governor Jerry Brown is set to propose two new tax hiking measures for the November, 2012 ballot. The increases include both an extra half-cent on the sales tax as well as the income tax for individuals making over $250,000. Both would be designed to expire in 2016. 

California's sales tax currently sits at 7.25%, so the new increase would raise that rate to 7.75%. Individuals making over $250K would face a 1% income tax hike. Those making between $300K and $500K would see their taxes raised by 1.5%, while the rate for those earning any more would go up 2%. Estimates peg the total revenues raised from the combined measures around $7 billion.

The state is in a dire fiscal situation that higher taxes alone can hardly solve. After $12 billion in cuts through this year's budget, falling revenues mean that the state faces an additional $2.5 billion in automatic cuts come January 1. While Brown's public sector pension reform plan has so far gained little traction, items on the chopping block as a result of the triggered cuts include an entire week of the 2011-2012 school year. Even assuming these cuts, the Legislative Analyst's Office recently projected a $3 billion deficit at the end of the 2011-2012 Fiscal Year, and a $13 billion gap heading into FY 2012-2013. 

This is not Brown's first attempt at raising taxes on Californians in the midst of a stalled economic recovery. His original budget proposal included extensions of a 1% sales tax hike a .5% vehicle license fee. Much to Brown's dismay, Republicans were unwilling to see the hikes continue. The Governor's push to continue these "temporary" tax increases during the budget battle lend little credence to the state's ability to let the newly proposed increases expire in 2016 as intended. 

By focusing on both the sales tax and an income tax increase on "the wealthy," Brown and his allies are buying into two competing visions of how to get tax increases passed. Focusing on a targeted yet vague group like "the wealthy" tries to convince voters of their own immunity from the measures. A sales tax hike, on the other hand, hits all residents and requires convincing voters that it is in their own best interest to pay more themselves. The latter is often more difficult to achieve; people are certainly apt to prefer raising taxes on someone other than themselves. 

Indeed, Brown is already struggling to balance competing tax-hiking interests. His proposal is unlikely to be the only tax increase on the November ballot. At this point, at least five are already gathering signatures. One measure backed by the 100,000 member strong California Federation of Teachers would institute an income tax hike only on individuals earning more than $1 million annually. True to the spirit of the "taxes for thee, but not for me," mentality, the Associated Press wrote that the union's President, Josh Pechthalt, believed "his initiative will resonate better with voters because it only taxes millionaires." The union's plan would primarily fund education in the state. Another measure would introduce a sliding scale income tax increase (focused on "the wealthy") that would raise an expected $10 million, also specifically for education. A third would raise $1.1 billion for green energy spending by boosting taxes on out-of-state corporations doing business in California. 

The competing interests at play demonstrate what the true result of higher taxes would be. State leaders are merely using the proposals to gather up extra dollars for their preferred spending projects. Rather than somehow using increased revenues to remedy a massive budget gap, higher taxes will feed into the cycle of taxing and spending that helped cripple California in the first place. 

 

 

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