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New California Governor Proposes Initiative to Extend Tax Increases

1 min readBy: Joseph Bishop-Henchman

In February 2009, California approved its budget, including a temporary increase in income and sales taxes, designed to enable the state to balance its budget. The income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. increases—0.25 percentage points on each tax bracketA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. —expired on December 31, 2010. The sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. increase-1 percentage point-will expire on July 1, 2011, as will a higher vehicle license tax (from 0.65% to 1.15%).

Officials around newly sworn-in Gov. Jerry Brown (D) are hinting that he will seek a ballot initiative to re-enact the income tax increase and extend the sales tax increase. From the Los Angeles Times:

Gov.-elect Jerry Brown is readying a budget plan that would call for a special election to ask voters to extend the soon-to-expire tax hikes, according to people involved in the discussions.

“I have a hard time seeing that they let go of this revenue,” said Esmael Adibi, director of Anderson Center for Economic Research at Chapman University.

I haven’t seen a revenue estimate on how much the increases would bring in, but in 2009, the income tax increase was estimated to bring in $3.8 billion over two years, the sales tax increase $8.6 billion over two years, and the vehicle license tax increase $2.9 billion over two years.

Gov. Brown had pledged during the campaign to submit all tax increases to voter approval. I give him credit for living up to his pledge and not calling the sales tax extension an “increase,” as he might have.