When Proposition 30 passes in November, we should put up a sign at the border that says, “Welcome to California, the state with the nation’s outrageously high income tax.”
Actually, we shouldn’t have to inform outsiders about this embarrassing fact. After the election, word would quickly spread across America that we’ve embroidered our reputation as a far-left state, attracted by tax increases rather than spending priorities.
Logic says that’s not a good reason to get people with money to invest here.
California already has by far the highest state income tax rate in the country — 13.3%, compared to 11% in Hawaii, 10.75% in New Jersey, and 9.9% in neighboring Oregon. But Oregon doesn’t have a state sales tax. We are also at the top when it comes to sales taxes.
The above states are outliers. Elsewhere, the highest rates tend to be in the mid-single digits. More relevantly, two economic competitors, Texas and Florida, levy no income tax at all. Five other states, including neighboring Nevada, do not either.
Proposition 30 would increase our income tax by another 1.75% to a previously unimaginable 15.05%.
And because only the wealthiest Californians — 0.2% of taxpayers, or an estimated 35,000 — would pay the new tax cap, chances are we’ll leave it with them on Election Day. After all, hardly any of us would have to pay this exorbitant rate.
But it won’t help California deter wealthy people from fleeing the state and recruiting wealthy newcomers.
However, that is not the argument we hear from the “no” side. There is no suggestion that taxes are already too high. Finally, the California Teachers Assn., a major opponent, was primarily responsible for the current rate of 13.3%.
OK, enough of this ranting.
What is Proposition 30 about?
It’s not a tax increase invented by Sacramento politicians. In fact, Gov. Gavin Newsom firmly rejects this as a “cynical scheme” and “fiscally irresponsible.”
Like virtually all electoral initiatives, it is the product of special interests. In this case, it’s Lyft, the ride-sharing company, and an environmental coalition that are seeking more public funding to accelerate climate control action.
The tax increase would be levied on personal incomes in excess of $2 million per year. That would bring in as much as $5 billion annually, according to the Legislative Analyst’s Office.
Of that, 80% would be spent to help California drivers switch to electric vehicles by discounting purchases and installing charging stations. At least half of that would go to low-income households and communities.
It would be a boon for Lyft and other ride-hailing companies, since the state has ordered them to use zero-emission vehicles for 90% of the miles they drive by 2030.
Lyft was Proposition 30’s bankroller and has raked in nearly $16 million to date.
Newsom has also signed an executive order banning the sale of new gas-powered vehicles by 2035. So Proposition 30 would help low- and middle-income motorists buy battery-powered cars.
The remaining 20% of new taxpayers’ money – up to $1 billion a year – would be spent on preventing and fighting wildfires.
Those are good reasons. But should only the rich foot the bill? Proponents say it’s fair because they can afford it far more than the middle class and poor.
“California is a world leader in income inequality,” said Brad Williams, economic adviser and former financial analyst for the state executive and legislature. “If we do nothing, the cost of moving to zero-emission vehicles will be borne heavily by the people who can least afford it.”
He adds: “The people at the top have done spectacularly well. We’ve all heard stories of people leaving the state, but there’s little evidence of this among high-income people. Most of the emigration was by low-income people who faced high rents and high living costs in California.”
Mary Nichols, who served as chair of the California Air Resources Board under three governors, is part of an environmental coalition that supports Proposition 30.
Automakers, she says, aren’t making money off electric vehicles because the cost of making batteries is still too high. She says if industry and consumers don’t get government help, California may not be able to meet its zero-emission vehicle goals.
Newsom says nonsense.
“Proposition 30 is a special interest carveout — a cynical scheme devised by an individual corporation to direct federal income tax revenue to its corporation,” the governor claimed last month.
And he pointed to a dilemma that everyone in Sacramento knows but lacks the courage to solve: California is too dependent on the income taxes and capital gains of the wealthy. Revenue bounces up and down like a yo-yo in good times and bad.
“California’s tax revenues are notoriously volatile, and this action would make our state’s finances even more unstable,” Newsom said.
Regarding the promotion of electric vehicle purchases, the governor noted that the state recently allocated $10 billion to the cause.
The CTA decidedly rejected the election proposal. His campaign rhetoric is aimed at Lyft. But their real objection is that education isn’t benefiting from higher tax revenues.
Instead of putting the money into the state’s general fund — with K-12 schools and community colleges automatically getting a 40% cut — it would be sent to a special fund out of reach of education.
This is the kind of ballot box that CTA budgeting will always fight.
The state had a surplus of nearly $100 billion this year. Voters don’t need to raise taxes any further.
It would be an ugly sight.