HEADLINES : California

Flurry of California tax proposals could cloud the November ballot

by Cory Eucalitto | February 22, 2012

Californians itching to pull the lever for a tax hike this November may find themselves with several more options than Governor Jerry Brown would hope. In December, the Governor announced his own plan to raise taxes through a ballot initiative, and his biggest foes in this latest effort may not be Republicans in the state legislature. Rather, at least two other tax proposals stand a chance of qualifying for the ballot on their own, raising the possibility that the clean vote hoped for by the Governor will be muddled by pesky choices. 

Brown's Plan

Brown recently announced that the campaign advocating for his tax plan had raised a whopping $2.2 million. The "Schools and Local Public Safety Protection Act" would increase the state sales tax from 7.25% to 7.75%. It also includes a 1% income tax hike on all individuals earning between than $250K-$300K, a 1.5% increase on those making between $300K-$500K, and a 2% increase on those earning over $500K. The Governor's office estimates that the combined tax increases would generate an additional $7 billion in revenue. 

At this point, Brown has the backing of most leading Democratic state lawmakers, as well as the Service Employees International Union, and the California Teacher's Association. Unlike the other proposals, this plan would mostly fund the general state budget, something supporters see as key to closing the state's estimated $13 billion deficit.

But, as has been mentioned, Brown's proposal very well may not be the only one on the ballot, threatening a split between interests seeking tax hikes to satisfy their own wants. While there were initially as many as five plans threatening to be on the ballot alongside the Governor's, two have emerged as the prime threat. 

"Millionaires' Tax"

Another powerful union has a scheme of its own. The California Federation of Teachers is pushing what the "California Funding Restoration Act of 2012." Billed as a "millionaires tax," it exclusively targets those earning over $1 million per year. CFT President Joshua Pechthalt introduced the plan with a call for millionaires to "pay their fair share." 

If passed, individuals earning between $1 and $2 million would see their marginal tax rates increased by three percentage points. Income over $2 million would face a five percent marginal tax hike. It would raise an additional $6 billion in revenue, according to supporters. Three fifths of those dollars would go to K-12 schools and higher education in the state, while the rest would go to local governments for safety and infrastructure projects. 

"Local Schools and Early Education Investment Act"

A separate proposal is the "Our Children, Our Future: Local Schools and Early Education Investment Act" which would raise an expected $10 billion through an extra income tax on nearly all Californians. Proposed by longtime attorney and education activist Molly Munger, under the plan those earning between $15,000 and $35,000 in taxable income would face an additional 0.4% tax on income above the initial $15,000. The scale of the extra taxes slides up with income, to a point where income above $1.4 million warrants a $25,000 tax, plus a 2.1% tax on income above the initial $1.4 million. Simply put, the proposal includes quite a large tax hike on families already living in one of the country's most heavily taxed states. 

Revenues raised from the tax will flow to the newly created California Education Trust Fund. Eighty five percent funds will go to local public schools, while the remaining fifteen percent will expand public preschool and early childhood development plans. Revenues that exceed the rate of growth of California per capita income will service and pay down state education bond debt. The Act makes clear that revenue raised is meant to serve exclusively as new money, not replace other sources of public education funding. Local education agencies will be required to spend nearly all of the dollars allocated through the trust fund within a year, or face having those funds recaptured by the newly established Fiscal Oversight Board. 

The proposal's campaign is already up and running. Munger has personally contributed nearly $1 million of her own dollars to the campaign and has indicated that she will spend whatever it takes. 

The bulk of all three proposals are clearly aimed at taxing the wealthy, a fact that would undoubtedly increase their individual chances of passage in an election year dominated by rhetoric about contributing one's "fair share." Where Brown's plan could face trouble, should all three proposals earn a spot on the ballot, is in convincing people to increase taxes on themselves, in the form of the sales tax. While supporters of each plan fret over how the others might impact their favored tax increase, the real concern ought to lie with the possible consequences of one's passage. Of course, voters feeling extra generous with other peoples' money come November could band together to pass all three.