(March 16, 2012) Faced with the prospect of two rival tax increase measures on the November ballot, Governor Edmund G. Brown Jr. moved to eliminate part of that competition by striking a deal with one of the proponents, the California Federation of Teachers (CFT).
The Governor’s new approach, announced on March 14, changes the mix of taxes, extends the term of the tax increase, and in the aggregate raises more money than his original proposal.
‘Higher Probability of Victory’
“It’s the tax program that balances the budget, and that’s the key,” Governor Brown told the Associated Press in Long Beach. “Joining the forces creates a higher probability of victory, and that’s good for school kids, it’s good for public safety.”
Last December, the Governor proposed a tax plan to restore the state’s fiscal health over five years. If approved by the voters in November, it would have increased the state sales tax rate by one-half cent for four years, beginning in 2013, and increased income tax rates for high-income Californians for five years, beginning in 2012.
The income tax rates would have increased by one percentage point for joint filers with incomes over $500,000, by 1.5 percentage points for joint filers with incomes over $600,000, and by two percentage points for joint filers with incomes over $1 million.
The California Federation of Teachers proposal would have permanently increased income tax rates on all taxpayers with incomes over $1 million by three percentage points and by five percentage points for all taxpayers with incomes over $2 million.
The new “compromise” announced by the Governor, Democratic leaders in the Legislature, and the California Federation of Teachers reduces the sales tax increase to one-quarter cent, and bumps up the income tax rate increases on the top two brackets.
The new measure would increase rates on joint filers with incomes over $600,000 by two percentage points and for joint filers with incomes over $1 million by three percentage points. The income taxes would remain in effect for seven years, while the sales tax increase would expire after four years.
Last week, the California Chamber of Commerce Board of Directors voted to oppose both the CFT measure and another measure to hike income taxes for education programs proposed by philanthropist Molly Munger. Early indications are that the prospect of a well-funded opposition campaign gave the Governor ammunition in his efforts to get the CFT proposal off the ballot.
As of this week, Munger has indicated she is committed to pushing her measure all the way to November.
In opposing the measures, the CalChamber Board flagged the long-term nature of the CFT (permanent) and Munger (12 years) measures. The CalChamber Board did not take up the Governor’s measure.
The chart above compares the income tax increases for the new proposal (Brown/CFT) with Governor Brown’s original proposal (Brown 1) and Molly Munger’s unchanged proposal, for joint filers in selected income tax brackets.
While an official fiscal analysis has yet to be completed, Senate President Pro Tem Darrell Steinberg (D-Sacramento) estimated that the new proposal would annually raise about $2 billion more than the Governor’s original proposal. Including the two additional years of income taxes, the measure would raise about $15 billion–$20 billion more than the Governor’s original plan.
The proceeds of these new taxes would, as in the Governor’s original measure, directly benefit the General Fund, to be spent on restoring school funding and reducing budgetary debt.
The Governor’s original measure differs from both the CFT and Munger proposals by giving the Legislature greater discretion in how to spend the proceeds of these taxes.
Short Time to Qualify
Qualifying the new initiative for the November ballot will be no small feat. The Governor and his allies will have only six to eight weeks to gather more than a million signatures to qualify a constitutional amendment for the ballot.
The Governor will need to raise additional funds for this effort, in addition to the $3.5 million already raised for the original plan. Still unclear is whether the Governor and/or CFT will continue to attempt to qualify their original proposals, as a backstop if the compromise effort does not succeed.