A recent ballot proposal by Calif. Gov. Jerry Brown to raise taxes on “high earners” may be gaining support among California voters, despite opposition voices.
According to a statewide survey released Dec. 12 by the Public Policy Institute of California (PPIC), “Sixty-five percent of all adults and 60 percent of likely voters favor the proposal, while 28 percent of adults and 36 percent of likely voters oppose it.”
The initiative includes raising the state tax by half a cent, and increasing the income tax rate for those making $250,000 a year. The tax increase would be in force over a five-year period.
According to the survey, the governor’s ballot proposal comes at a time when 93 percent of Californians “say the state’s budget situation is a problem.” More than half (62 percent) say services provided by city and county governments and public schools have been impacted by the budget crisis.
PPIC president and CEO Mark Baldassare commented on survey results in a press release, saying, “The governor’s plan includes some of the most popular ideas for raising taxes—higher taxes on the wealthy and more money for schools.
“At the same time, the major challenges in asking Californians to pass state tax increases are the low approval ratings of state elected officials and high levels of distrust in government,” Baldassare concluded.
State lawmakers failed to pass Democratic Gov. Brown’s tax measure earlier this year, which required a supermajority vote (two-thirds) in the California legislature. Although Democrats hold a majority, they were unsuccessful in garnering necessary Republican votes.
The governor appealed directly to voters Dec. 5, announcing his November 2012 ballot initiative in “An Open Letter to Californians.” He said he is “going directly to the voters because I don’t want to get bogged down in partisan gridlock as happened this year. The stakes are too high.
“The stark truth is that without new tax revenues, we will have no other choice but to make deeper and more damaging cuts to schools, universities, public safety, and our courts,” the governor stated in the letter.
Republican Opposition
The Republican minority has made it clear they will not support additional taxes without voter approval. Brown also promised voters during his election campaign that he would not raise taxes without voter approval, thus forcing a ballot initiative.
On Dec. 6, California Republicans responded to the governor’s open letter, addressing the state’s revenue problem. “We don’t have this problem because some people are not paying enough taxes,” said California Republican Party (CRP) Chairman Tom Del Beccaro, in a statement. “We have this problem because too few people are working and therefore are not paying income taxes. Indeed, we have one million fewer people working than a decade ago.
“We also know that Brown has been seeking 25+ percent spending increases since he became governor. The only way to stop his runaway spending is for the voters to support a spending cap, and next fall I have every confidence they will,” the chairman added.
With 2011 revenue projections falling short, automatic cuts are expected to begin in January, including cuts in K–12 and higher education, health and human services, and public services.
The 2011–2012 budget had a revenue projection that failed to materialize. Last June, during negotiations in crafting the new budget, a sudden improvement in government revenues was reported by State Controller Chiang. Seeing a light at the end of the recession tunnel, greater revenue was projected to help reach a balanced budget.
Unfortunately, revenues have been much lower than projected, with some estimating a $4 billion shortfall. Taking into account existing debt from previous years, a $13 billion deficit is projected for 2012–2013, with no other programs to draw from, or ‘quick fixes’ available.
Brown says his income tax surcharges will bring in $7 billion in additional revenue during their five-year implementation. However, comments on several blogs indicate voter skepticism, fearing the ’temporary‘ taxes will become permanent. However, Brown did allow the previous ’wealthy tax' to sunset in 2010, after a failed attempt to extend it.
A Bloomberg/Newsweek report in June commented on the wealthy tax. “The soak-the-rich drive ‘just petered out,’” says Joseph Henchman, vice president for legal and state projects at the Tax Foundation in Washington, a group focused on lowering taxes. “All of these states are backing away now …” from increasing taxes, or waiting for temporary taxes to sunset, Henchman added. The report goes on to credit government revenues rebounding around the country as a factor.
But for California, its rebound to date appears to be unsteady, with less momentum, borne out in the upcoming $13 billion shortfall.
The Bloomberg/Newsweek report also notes “A few states are bucking the national trend. Connecticut has raised its top tax rate from 6.5 percent to 6.7 percent. Oregon voters approved a measure in January establishing two new tax brackets: 10.8 percent for those earning more than $125,000 and 11 percent for those making more than $250,000.”
Defining the ‘Wealthy’
Some see middle-class businessmen and professionals as being the majority of high earners impacted by Gov. Brown’s proposed legislation. Brown proposes a 1 percent income tax rate increase for individuals making more than $250,000 annually, and a 2 percent rate increase for individuals making more than $500,000.
The Bloomberg/Newsweek report mentions that District of Columbia Mayor Vincent Gray proposed raising taxes for residents earning more than $200,000, but the District council nixed the plan. Someone making “$200,000 is not a rich person,” said Barbara Lang, president of the D.C. Chamber of Commerce. “It’s not a lot of money.'”
California considered and passed a temporary wealthy income tax in 2008. A tax-flight provision in the law provided for a 55 percent asset seizure exit tax. The seizure provision was considered unconstitutional and was removed from the bill.
With additional reporting by Jim Fogarty
