Initiative Update:
California Teachers Association Files Initiative to Increase Personal Income Tax on High Earners

The California Teachers Association and other unions filed an initiative September 14 that would extend Governor Jerry Brown’s Proposition 30 income tax increase for 12 years – potentially increasing taxes by $89 billion.

Initiative 15-0065 would keep in place three additional rates on high-income taxpayers. It would not impact the sales tax increase that also was a part of the governor’s 2012 tax initiative. The temporary sales tax increase imposed by Proposition 30 would sunset December 31, 2016, as scheduled.

The measure was filed by Lance Olson, an attorney with Remcho, Johansen & Purcell LLP, on behalf of the teachers’ union, other education labor groups, and unions representing health care workers and police officers.

In 2012, voters approved Proposition 30, which imposed both a temporary personal income tax and a temporary sales and use tax increase. Prior to passage of Proposition 30, taxpayers affected by the higher taxes would have been taxed at a rate of 9.3 percent, and taxpayers with a taxable income of $1 million or more also would be subject to an additional 1 percent tax that funds programs related to mental health.

Under the new initiative, revenue generated by the tax hike would not be included in the formula used to calculate what the state sends into its “rainy day fund.”

 

Proposed Marginal Personal Income Tax

Rates Under New Tax Hike Initiative

(Using Brackets in Effect for the 2015 Taxable Year)

Single Filer’s Taxable Income

Joint Filers’ Taxable Income

Head-of-Household Filer’s Taxable Income

Marginal Tax

Rate Without Prop. 30*

Proposed Marginal Tax Rate*

Is Over

But Not Over

Is Over

But Not Over

Is Over

But Not Over

$0

$7,850

$0

$15,700

$0

$15,710

1%

-

$7,850

$18,610

$15,700

$37,220

$15,710

$37,221

2%

-

$18,610

$29,372

$37,220

$58,744

$37,221

$47,982

4%

-

$29,372

$40,773

$58,744

$81,546

$47,982

$59,383

6%

-

$40,773

$51,530

$81,546

$103,060

$59,383

$70,142

8%

-

$51,530

$263,222

$103,060

$526,444

$70,142

$357,981

9.3%

-

$263,222

$315,866

$526,444

$631,732

$357,981

$429,578

9.3%

10.3%

$315,866

$526,443

$631,732

$1,052,886

$429,578

$715,962

9.3%

11.3%

$526,443

$1,000,000

$1,052,886

$2,000,000

$715,962

$1,000,000

9.3%

(+ 1% Mental Health

Surcharge

for joint filers only)

12.3%

(+ 1% Mental Health

Surcharge

for joint filers only)

Over $1,000,000

Over $2,000,000

Over $1,000,000

9.3%

(+ 1% Mental Health

Surcharge)

(12.3%

+ 1% Mental Health

Surcharge)

Note: Income brackets shown are in effect for the 2015 taxable year, and will be adjusted for inflation in future years. Single filers also include married individuals and registered domestic partners (RDPs) who file taxes separately. Joint filers include married and RDP couples who file jointly, as well as qualified widows or widowers with a dependent child.

 

* The proposed additional tax rates would take effect beginning with the 2019 taxable year through the 2030 taxable year.

 

Sources: Franchise Tax Board and text of Initiative 15-0065.

 

Based on data from the Legislative Analyst’s Office (LAO) and the California Department of Finance, CalTax estimates that this initiative could cost taxpayers $89 billion during the 12 years the higher taxes would be in effect, although this figure could drop significantly if the tax hike prompts more high-income Californians to move out of the state.

Proposition 30 imposes higher personal income tax rates for the 2012 through 2018 taxable years. The new proposal would extend these higher taxes through the 2030 taxable year. The table above shows what the rates would be (chart includes all tax rates, including those for taxpayers who would not be directly impacted by the initiative’s proposed increases).

September 18, 2015

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