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Initiative Update:
Brown Lurches Left With New Tax Initiative to Soak the Rich

Governor Jerry Brown announced March 14 that he has jettisoned the tax increase initiative that he has been promoting heavily since December, and instead is pursuing a new initiative (12-009) that includes a much steeper income tax increase on California's top earners.

The new plan would give California a top personal income tax rate of 13.3 percent – the highest in the nation by far, and more than double the top rates of many states.
The initiative would:

·         Increase the top personal income tax brackets by 1 percent for taxable income over $250,000 for single filers ($500,000 for joint filers), 2 percent for income over $300,000 (or $600,000 for joint filers), and 3 percent for income over $500,000 (or $1 million for joint filers). (The governor's previous plan called for increases of 1.5 percent for income over $300,000, and 2 percent for income over $500,000.) This tax hike would be retroactive to the beginning of this year, and would remain in place through 2018 – two years longer than the income tax increase in his previous proposal.

·         Increase the state sales and use tax rate by 0.25 percent, for five years. (The governor's previous initiative called for an increase of 0.5 percent for the same amount of time.)

·         Add constitutional protection to the "realignment" shift of revenue to counties to pay for incarcerating criminals at the local level.

The initiative will raise an estimated $8.9 billion in new taxes, according to the governor, which is $2 billion more than was estimated for his previous tax initiative.

The new initiative is drafted to put it in direct conflict with the Molly Munger initiative, and the one with the highest number of votes will prevail (assuming either gets more than 50 percent of the vote).

Governor Brown said the change was a compromise with the California Federation of Teachers, which had been collecting signatures for a soak-the-rich income tax initiative that the governor had badmouthed in recent weeks, saying it was inferior to his December initiative and that it would face strong opposition from the business community. The governor has been lobbying proponents of other tax initiatives to drop their plans, contending that if more than one tax measure appears on the November ballot, voters will be inclined to reject all of them.

However, the agreement announced this week does not include Ms. Munger, who continues to collect signatures for her initiative that would raise income taxes for nearly all income levels, with especially large increases for top earners. On Thursday, Ms. Munger contributed $1.5 million to her tax campaign, signaling that she has no intention of halting the signature-gathering effort. Another tax increase measure potentially crowding the November ballot is the mandatory single sales factor initiative promoted by hedge-fund manager Tom Steyer.

Both the governor and the Federation of Teachers have spent considerable amounts of money collecting signatures for their original initiatives, but these signatures will be scrapped, and public employee unions are likely to spend heavily to collect signatures for the new initiative in a very compressed period of time. Attorney General Kamala Harris and Secretary of State Debra Bowen are expected to fast-track the initiative through their administrative procedures, so it can hit the streets as soon as possible.

Joshua Pechthalt, president of the California Federation of Teachers, said, "Our values and principles are clearly reflected in this new initiative." Democratic legislative leaders also came out in support of the new tax increase initiative.

Assembly Republican Leader Connie Conway and many other Republicans blasted the new tax hike measure. Assemblywoman Conway said the initiative would cost taxpayers $31 billion, and added: "Hard-working families will still be hit with a costly sales tax increase and our economic recovery will still be jeopardized. The reality is that any new revenue generated will not benefit our schools or improve our budget picture, as Democrats have refused to make any of the governor's proposed budget cuts. It's interesting to point out that media reports have said this new plan raises $1 billion more next year than the previous version and the majority party's first budget action this year was to increase welfare spending by $1 billion."

State Income Tax Top Rates – 2012
If Governor's Tax Initiative Passes

California

13.30%

Rhode Island

5.99%

Hawaii

11.00%

Ohio

5.925%

Oregon

9.9%

Virginia

5.75%

Iowa

8.98%

Maryland

5.5%

New Jersey

8.97%

Massachusetts

5.3%

Vermont

8.95%

Oklahoma

5.3%

New York

8.82%

Alabama

5.0%

Maine

8.5%

Mississippi

5.0%

Minnesota

7.85%

Utah

5.0%

Idaho

7.8%

New Hampshire

5.0%

Wisconsin

7.75%

Illinois

5.0%

North Carolina

7.75%

New Mexico

4.9%

Arkansas

7.0%

Colorado

4.63%

South Carolina

7.0%

Arizona

4.54%

Montana

6.9%

Michigan

4.35%

Nebraska

6.84%

North Dakota

3.99%

Delaware

6.75%

Indiana

3.4%

Connecticut

6.7%

Pennsylvania

3.07%

West Virginia

6.5%

Alaska

0%

Kansas

6.45%

Florida

0%

Missouri

6.0%

Nevada

0%

Louisiana

6.0%

South Dakota

0%

Georgia

6.0%

Texas

0%

Kentucky

6.0%

Washington

0%

Tennessee

6.0%

Wyoming

0%

Note: California's rate includes the 1 percent tax on income over $1 million, with revenue earmarked for mental health programs.

 

March 16, 2012
2012 California Taxpayers Association. All Rights Reserved.