On Jan. 18, 2018, proponents of a California initiative to raise the income tax on individuals earning over $1 million gained approval to begin collecting signatures. The initiative would impose an additional 1 percent tax on personal income over $1 million. The revenue raised from this newly imposed tax, which is estimated to range from $1.5 billion to $2.5 billion annually, would be used to help fund hospitals, clinics, and primary care providers serving low-income patients.
To put this in context, California currently has the highest state income tax in the nation, with a top marginal income tax rate of 12.3 percent. Moreover, California already imposes an additional 1 percent tax on income over $1 million, meaning this proposal would increase the total tax on income over $1 million to 2 percent.
California is not the only jurisdiction to attempt to raise income taxes on high-income earners. On July 10, 2017, Seattle’s city council unanimously approved a 2.25 percent tax on income earned in excess of $250,000 for single individuals and $500,000 for married couples, as previously discussed by Bloomberg Tax. However, on Nov. 22, 2017, the Washington Superior Court declared the tax void, finding that it lacked authorization from Washington statutes.
New York also has a “millionaire’s tax,” which imposes an 8.82 percent tax on income over $1,077,500 for single individuals and $2,155,350 for joint filers. However, New York passed legislation in 2017 that eliminates this tax beginning in 2020. On Jan. 19, New York City Mayor Bill de Blasio (D) advocated for the tax stating that he believes “the millionaire’s tax is still the best, most reliable, most verifiable way to get that permanent funding,” as reported by Bloomberg Tax (subscription required). Mayor de Blasio would like to use the funds generated from the tax to fund infrastructure repairs for the city’s transit system.
States often turn to high-income earners when trying to find ways to raise revenue, and California looks to be the latest jurisdiction vying to do so. If the proponents of this California initiative can collect 585,407 signatures by July 17, 2018, then the Golden State will be one step closer to increasing taxes on high-income earners.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Should Californians support a tax increase on individuals who earn over $1 million?
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