Weekly Round-Up: California Embarks on Bold Tax Policy Experiment (Again)

Along with its beautiful beaches, mountains, and movie stars, California also boasts the 9th largest economy in the world. But after the 2012 elections, it is another of the Golden State’s defining characteristics that has been brought into sharper focus: its willingness to experiment with policy.

The same state that enacted Prop. 13, the anti-tax initiative that is said to have triggered a nationwide “taxpayer revolt” in the 1980s, approved a ballot measure in the 2012 election that raises state income taxes on the so-called wealthy and hikes the statewide sales tax rate. The measure, called Proposition 30, passed with 53.9 percent of votes in its favor. 

While the income tax increase  targets earners with over $250,000 of income, the sales tax increase affects all California consumers. Why would a majority of citizens vote to raise taxes on themselves? 

Supporters of Proposition 30 named it the “Schools and Local Public Safety Protection Act,” and campaigned on the premise that Prop. 30 revenues would ensure adequate funding in the budget for public education.

Furthermore, California faces a $1.9 billion budget deficit through mid-2014, but the new infusion of cash from Prop. 30, along with a growing economy, could put the state back on track to a surplus for the first time since 2001, as Mercury News reported recently.

More changes to the tax code are likely, as the Democratic Party now holds a supermajority in both houses of the California legislature. While both Governor Brown and the legislature have stated that they will not use this supermajority to raise any more taxes, they are likely to introduce more general tax reforms in the coming year, Bloomberg BNA’s California correspondent Laura Mahoney reported recently  in the Daily Tax Report.

Governor Brown and Senate President Pro Tempore Darrell Steinberg have pledged to use their party’s supermajority responsibly and only raise taxes upon approval by the public. With a supermajority, however, Democrats will not need the vote of Republicans in order to place changes on the ballot, Mahoney noted. 

In other developments…

Alston & Bird, LLP issues State and Local Tax Advisory on California’s Proposition 39 , which requires multistate corporations to utilize a single-factor apportionment formula as of January 1, 2013.

How the Texas Supreme Court saved the margin tax by finding it constitutional (again) - Part 1 , by the Texas State and Local Tax Law Blog.

How would the fiscal cliff affect typical families in each state , by Nick Kasprak of the Tax Foundation.

Compiled by Melissa Fernley
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