Tax Initiative:
Governor Brown Changes Tax Proposal

Governor Jerry Brown is slated to unveil today an income and sales tax increase initiative that is substantially different from the plan he spent six months of this year trying to get the Legislature to place on the ballot. The new proposal, more targeted to "soak the rich," joins a glut of other tax increase initiatives hoping to qualify for the November 2012 ballot.

The income tax component of the governor's plan would make state revenues even more volatile, subject to big swings depending on the economy. Under the new plan, personal income tax would be raised 1 percent for taxable income above $250,000, 1.5 percent for taxable income above $300,000, and 2 percent for taxable income above $500,000.

Under the proposal, the income tax would take effect for the 2012 tax year – making it retroactive to the 10 months prior to the vote, when no withholding would be taking place – and would expire at the end of 2016.

The plan the governor proposed in January would have raised income taxes by 0.25 percent at all income levels.

Governor Brown's plan would result in a dramatic shift in tax burden. It is not known how many taxpayers would decide to establish residence in a no-income-tax state (Washington, Nevada, Texas, Florida, etc.) because of this change. (A taxpayer making $10 million a year would save $1.1 million by moving to a no-tax state.) However, if enough people decide to move, this could actually reduce taxes, because 10.3 percent of $10 million is more than 12.3 percent of zero.

The second component of the governor's new tax proposal is a 0.5 percent sales and use tax increase. This is smaller than the 1 percent increase the governor sought earlier this year. The governor is eschewing the increase in the car tax that he proposed in January.

Under the governor's plan, the sales tax increase would take effect in 2013 and expire at the end of 2016.

If the rich stay put, the proposal is estimated to increase state revenue by approximately $7 billion a year.

December 5, 2011
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