A deal is a deal, right? When California voters passed Proposition 30 in 2012, Gov. Jerry Brown promised that the sales and income tax increases it authorized would be temporary, short-term stopgaps to prop up the state’s recession-battered budget.
But now it is 2016, the year the measure’s quarter-cent sales tax hike expires. The income tax increase on California’s highest-earning residents will expire in 2018.
And a coalition that includes the California Teachers Association, the California Medical Association, the Democratic Party and the Service Employees International Union now is pushing a new initiative, Proposition 55, which will allow the sales tax increase to expire, but extends the income tax increase for 12 years.
Don’t blame Gov. Brown. He is neither supporting nor opposing the measure. But he is acknowledging if Prop. 55 does not pass and California’s economy slips into recession, drastic cuts will have to be made to California schools, medical care for the poor, health services and public protection.
“I am prepared to manage without it,” Brown said this spring. “I am prepared to manage with it.”
The problem is that despite years of lip services, California legislators have not addressed the need to reform the state’s tax system, which is too dependent on income taxes, with a smaller amount coming from sales taxes.
Income tax revenues amount to about two-thirds of the state’s general fund, with about half of the money coming from 1 percent of the state’s wealthiest residents. But the incomes of these wealthy taxpayers are also the most susceptible to economic downturns. Technology bubbles burst, for example, crashing lifestyles and the state’s budget with them.
With Prop. 30, Brown strengthened the state’s reserves, or “rainy day” fund, to cushion the impact of recession, which the governor says is looming just around the corner.
Although remaining neutral on Prop. 55, the income tax extension initiative on the November ballot, Brown threatened open opposition unless proponents included a “rainy day fund” requirement, which they did.
Prop. 55 will:
• Extend for 12 years the temporary personal income tax increase enacted in 2012 on people earning more than $250,000, single filers; more than $340,000, head of household; and more than $500,000, joint filers. According to the state legislative analyst, this is an example of how the increase will work: If a single man has a taxable income of $300,000, he will pay an extra 1 percent tax on the income between $263,000 and $300,000, or $370. The increases range between 1 percent and 3 percent, depending on the taxpayer’s income. Tax brackets also will be adjusted for inflation.
• Allocate tax revenues to K-12 schools and California community colleges.
• Bar use of education revenues for administrative costs, but allow local spending discretion. Use of the money will be subject to annual audits.
• Allocate up to $2 billion per year to healthcare programs, including Medi-Cal.
• Increase budget reserves and debt repayments.
Gov. Brown has lived up to his part of the 2012 bargain made with voters when they passed Prop. 30. He has used the money as promised and has been tight-fisted in fighting excessive spending proposals.
And he was correct to insist that Prop. 55 on the November ballot include a requirement that some of the money generated by an extended income tax increase be placed in reserves.
But he was also correct to note that a looming recession could devastate California schools and other critical programs.
Voters are urged to vote yes on Prop. 55. In the decade-plus this extended “temporary” tax will buy, they must demand that legislators get serious about reforming California’s tax system to bring stability and accountability to state finances.