High-Income Earner Tax Hike on California Ballot

The Bloomberg BNA Tax Management Weekly State Tax Report filters through current state developments and analyzes those critical to multistate tax planning.

By Laura Mahoney

July 1 — California voters will decide in November whether to extend temporary income tax increases on high-income earners for another 12 years.

Secretary of State Alex Padilla (D) said June 30 that proponents gathered enough signatures to qualify the measure, in addition to an increase on tobacco products taxes, for the statewide November ballot. They will join at least 15 other measures on topics ranging from single-use plastic bags to the legalization of recreational marijuana (2016 Weekly State Tax Report 23, 7/1/16).

The income tax extension would extend through 2030 increases in place since January 2013 that are set to expire Dec. 31, 2018. Annual revenue of at least $5 billion would fund the state's Medicaid program, and schools and community colleges.

Voters approved the tax increases, championed by Gov. Jerry Brown (D), as a temporary necessity to close the state's chronic budget gap in 2012 (2012 Weekly State Tax Report 16, 11/16/12).

Higher Rates

The following personal income tax (PIT) rates would remain in effect through 2030:

  •  the PIT rate on individuals earning $250,000 to $300,000, and joint filers earning $500,000 to $600,000 that increased to 10.3 percent from 9.3 percent;
  •  the PIT rate on individuals earning $300,000 to $500,000, and joint filers earning $600,000 to $1 million that increased to 11.3 percent from 9.3 percent; and
  •  the PIT rate on individuals earning more than $500,000 and joint filers earning more than $1 million will increase from 9.3 percent to 12.3 percent.

The California Teachers Association, California Federation of Teachers, Service Employees International Union, California Hospital Association and California Medical Association are prominent backers of the measure.

Brown hasn't taken a position on the measure, but has repeatedly said he promised voters that the increases they approved in 2012 were temporary.

A measure backed by the California Medical Association would increase the tax on cigarettes by $2 a pack. An equivalent increase would apply to other tobacco products and electronic cigarettes that contain nicotine. The measure also has support from Service Employees International Union, California Hospital Association, the American Lung Association and other health advocacy groups.

Revenue of at least $1 billion a year would be spent on health care, tobacco use prevention, research and law enforcement. California's current tobacco tax rate is 87 cents per pack of cigarettes.

To contact the reporter on this story: Laura Mahoney in Sacramento, Calif., at lmahoney@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com

Copyright © 2016 Tax Management Inc. All Rights Reserved.