California Complexity Continues

August 19, 2005

California currently sports the highest individual income tax rate in the nation, 10.3%. Now comes word that a measure to increase taxes to fund universal preschool is close to gaining enough signatures to qualify for the 2006 ballot. From State Tax Notes:

A measure promoted by actor Rob Reiner and Preschool California to provide for universal preschool in California has been cleared for circulation and is expected to gather sufficient signatures to qualify for the June 2006 ballot. If approved by voters, the initiative would raise $2 billion to $2.4 billion per year through a 1.7 percentage point tax increase on individuals earning above $400,000 ($800,000 for joint filers).

Tax increases which are earmarked for specific programs are bad tax policy because taxes should be designed to raise revenue to fund the government as a whole. Also, earmarked taxes often add complexity to the tax code.

A tax increase will be devastating to California’s already fragile business climate, which the Tax Foundation ranks 38th. The additional tax increase on top of the 1% surcharge on individual incomes over $1 million—which took effect January 1, 2005 and gave California the highest marginal rate in the country–will be especially harmful to the business climate.

The large proposed tax increase will only serve to push high income earners and businesses from the state, which California can hardly afford. California voters need to think about this before heading to the ballot in 2006.


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