California's tax hike, Prop 55 on the 11/8/16 ballot, passed (62-38). Its story dates back to 2012.
In 2012, a need for revenue led voters to enact two temporary tax increases (Proposition 30). The state sales tax was increased from 7.25% to 7.50% for four years (2013 through 2016). Also, new personal income tax brackets (10.3, 11.3, and 12.3 percent) were added to the existing top rate of 9.3 percent for seven years, starting at income levels greater than $250,000 (2012 through 2018). The income tax rate increase was retroactive back to January 1, 2012.
- Prop 55 offers a “temporary” tax hike for high income individuals for 12 years! This is beyond any common perception of temporary.
- The tax hike allows the voters and lawmakers to continue to kick the tax reform can down the road for many more years. California’s tax system is outdated and out-of-sync with today’s ways of living and doing business. And it doesn’t generate sufficient revenue even with high income and sales tax rates. Work of two reform commissions this century was mostly ignored. [Commission on Tax Policy in the New Economy (final report released Dec. 2003) and the Commission on the 21st Century Economy (report released Sept 2009).]
- Even without continuation of the quarter cent sales tax hike, the sales tax rate (state and local) and the personal income tax rates are among the highest of all states. This tax system fact suggests a need to broaden the tax bases to lower the rates. Doing so should reduce volatility, simplify and improve efficiency.
Click here for my California tax reform website.