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California Proposition 30 Analysis and Summary

California Proposition 30 Analysis and Summary

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12 | Title and Summary / Analysis 
TEMPORARY TAXES TO FUND EDUCATION.GUARANTEED LOCAL PUBLIC SAFETY FUNDING.INITIATIVE CONSTITUTIONAL AMENDMENT.
OFFICIAL TITLE AND SUMMARY PREPARED BY THE ATTORNEY GENERAL 
PROPOSITION
30
3031323334353637383940
 ANALYSIS BY THE LEGISLATIVE ANALYST
OFFICIAL TITLE AND SUMMARY PREPARED BY THE ATTORNEY GENERAL 
TEMPORARY TAXES TO FUND EDUCATION. GUARANTEED LOCAL PUBLIC SAFETY FUNDING.INITIATIVE CONSTITUTIONAL AMENDMENT.
•Increasespersonalincometaxonannualearningsover$250,000forsevenyears.•Increasessalesandusetaxby¼centforfouryears.•Allocatestemporarytaxrevenues89%toK–12schoolsand11%tocommunitycolleges.•Barsuseoffundsforadministrativecosts,butprovideslocalschoolgoverningboardsdiscretiontodecide,inopenmeetingsandsubjecttoannualaudit,howfundsaretobespent.•Guaranteesfundingforpublicsafetyservicesrealignedfromstatetolocalgovernments.
Summary of Legislative Analyst’s Estimate of Net State and Local Government Fiscal Impact:
•Additionalstatetaxrevenuesofabout$6billionannuallyfrom2012–13through2016–17.Smalleramountsofadditionalrevenuewouldbeavailablein2011–12,2017–18,and2018–19.•Theseadditionalrevenueswouldbeavailabletofundprogramsinthestatebudget.Spendingreductionsofabout$6billionin2012–13,mainlytoeducationprograms,wouldnottakeeffect.
OVERVIEW
Thismeasuretemporarilyincreasesthestatesalestaxrateforalltaxpayersandthepersonalincometax(PIT)ratesforupper-incometaxpayers.Thesetemporarytaxincreasesprovideadditionalrevenuestopayforprogramsfundedinthestatebudget.Thestate’s2012–13budgetplan—approvedbytheLegislatureandtheGovernorinJune2012—assumespassageofthismeasure.Thebudget,however,alsoincludesabackupplanthatrequiresspendingreductions(knownas“triggercuts”)intheeventthatvotersrejectthismeasure.ThismeasurealsoplacesintotheStateConstitutioncertainrequirementsrelatedtotherecenttransferofsomestateprogramresponsibilitiestolocalgovernments.Figure1summarizesthemainprovisionsofthisproposition,whicharediscussedinmoredetailbelow.
Figure 1
Overview of Proposition 30
State Taxes and Revenues
•Increasessalestaxratebyone-quartercentforeverydollarforfouryears.•Increasespersonalincometaxratesonupper-incometaxpayersforsevenyears.•Raisesabout$6billioninadditionalannualstaterevenuesfrom2012–13through2016–17,withsmalleramountsin2011–12,2017–18,and2018–19.
State Spending
•Ifapprovedbyvoters,additionalrevenuesavailabletohelpbalancestatebudgetthrough2018–19.•Ifrejectedbyvoters,2012–13budgetreducedby$6billion.Staterevenueslowerthrough2018–19.
Local Government Programs
•Guaranteeslocalgovernmentsreceivetaxrevenuesannuallytofundprogramresponsibilitiestransferredtothembythestatein2011.
 
For text of Proposition 30, see page 80.
 
PROP
 
30
TEMPORARY TAXES TO FUND EDUCATION.GUARANTEED LOCAL PUBLIC SAFETY FUNDING.INITIATIVE CONSTITUTIONAL AMENDMENT.
ANALYSIS BY THE LEGISLATIVE ANALYST CONTINUED
 Analysis | 13
3031323334353637383940
STATE TAXES AND REVENUES
Background
TheGeneralFundisthestate’smainoperatingaccount.Inthe2010–11scalyear(whichranfromJuly1,2010to June30,2011),theGeneralFund’stotalrevenueswere$93billion.TheGeneralFund’sthreelargestrevenuesourcesarethePIT,thesalestax,andthecorporateincometax.
Sales Tax.
SalestaxratesinCaliforniadifferbylocality.Currently,theaveragesalestaxrateisjustover8percent. Aportionofsalestaxrevenuesgoestothestate,whiletherestisallocatedtolocalgovernments.ThestateGeneralFundreceived$27billionofsalestaxrevenuesduringthe2010–11scalyear.
Personal Income Tax.
ThePITisataxonwage,business,investment,andotherincomeofindividualsandfamilies.StatePITratesrangefrom1percentto9.3percentontheportionsofataxpayer’sincomeineachofseveralincomebrackets.(Thesearereferredtoasmarginaltaxrates.)Highermarginaltaxratesarechargedasincomeincreases.Thetaxrevenuegeneratedfromthistax—totaling$49.4billionduringthe2010–11scalyear—isdepositedintothestate’sGeneralFund.Inaddition,anextra1percenttaxappliestoannualincomeover$1million(withtheassociatedrevenuededicatedtomentalhealthservices).
Proposal
Increases Sales Tax Rate From 2013 Through 2016.
Thismeasuretemporarilyincreasesthestatewidesalestaxratebyone-quartercentforeverydollarofgoodspurchased.Thishighertaxratewouldbeineffectforfouryears—fromJanuary1,2013throughtheendof2016.
Increases Personal Income Tax Rates From 2012 Through 2018.
AsshowninFigure2,thismeasureincreasestheexisting9.3percentPITratesonhigherincomes.Theadditionalmarginaltaxrateswouldincreaseastaxableincomeincreases.Forjointlers,forexample,anadditional1percentmarginaltaxratewouldbeimposedonincomebetween$500,000and$600,000peryear,increasingthetotalrateto10.3percent.Similarly,anadditional2percentmarginaltaxratewouldbeimposedonincomebetween$600,000and$1million,andanadditional3percentmarginaltaxratewouldbeimposedonincomeabove$1million,increasingthetotalratesontheseincomebracketsto11.3percentand12.3percent,respectively.Thesenewtaxrateswouldaffectabout1percentofCaliforniaPITlers.(Thesetaxpayerscurrentlypayabout40percentofstatepersonalincometaxes.)Thetaxrateswouldbeineffectforsevenyears—
Figure 2
Current and Proposed Personal Income Tax Rates Under Proposition 30
Single Filer’sTaxable Income
a
Joint Filers’Taxable Income
a
Head-of-HouseholdFiler’sTaxable Income
a
CurrentMarginalTax Rate
b
ProposedAdditionalMarginal Tax Rate
b
$0$7,316$0$14,632$0$14,6421.0%7,31617,34614,63234,69214,64234,6922.017,34627,37734,69254,75434,69244,7214.027,37738,00454,75476,00844,72155,3486.038,00448,02976,00896,05855,34865,3768.048,029250,00096,058500,00065,376340,0009.3250,000300,000500,000600,000340,000408,0009.31.0%300,000500,000600,0001,000,000408,000680,0009.32.0Over 500,000Over 1,000,000Over 680,0009.33.0
a
Income brackets shown were in eect or 2011 and will be adjusted or ination in uture years. Single flers also include married individuals andregistered domestic partners (RDPs) who fle taxes separately. Joint flers include married and RDP couples who fle jointly, as well as qualifedwidows or widowers with a dependent child.
b
Marginal tax rates apply to taxable income in each tax bracket listed. The proposed additional tax rates would take eect beginning in 2012 andend in 2018. Current tax rates listed exclude the mental health tax rate o 1 percent or taxable income in excess o $1 million.
 
14 | Analysis 
ANALYSIS BY THE LEGISLATIVE ANALYST CONTINUED
PROP
 
30
TEMPORARY TAXES TO FUND EDUCATION.GUARANTEED LOCAL PUBLIC SAFETY FUNDING.INITIATIVE CONSTITUTIONAL AMENDMENT.
3031323334353637383940
startinginthe2012taxyearandendingattheconclusionofthe2018taxyear.(BecausetherateincreasewouldapplyasofJanuary1,2012,affectedtaxpayerslikelywouldhavetomakelargerpaymentsinthecomingmonthstoaccountforthefull-yeareffectoftherateincrease.)Theadditional1percentrateformentalhealthserviceswouldstillapplytoincomeinexcessof$1million.Proposition30’sratechanges,therefore,wouldincreasethesetaxpayers’marginalPITratefrom10.3percentto13.3percent.Proposition38onthisballotwouldalsoincreasePITrates.Thenearbyboxdescribeswhatwouldhappenifbothmeasuresareapproved.
What Happens if Voters Approve Both Proposition 30 andProposition 38?
State Constitution Species What Happens i Two Measures Confict.
Ifprovisionsoftwomeasuresapprovedonthesamestatewideballotconict,theConstitutionspeciesthattheprovisionsofthemeasurereceivingmore“yes”votesprevail.Proposition30andProposition38onthisstatewideballotbothincreasepersonalincometax(PIT)ratesand,assuch,couldbeviewedasconicting.
 Measures State That Only One Set o Tax Increases Goes Into Eect.
Proposition30andProposition38bothcontainsectionsintendedtoclarifywhichprovisionsaretobecomeeffectiveifbothmeasurespass:•
I Proposition 30 Receives More Yes Votes.
Proposition30containsasectionindicatingthatitsprovisionswouldprevailintheirentiretyandnoneoftheprovisionsofanyothermeasureincreasingPITrates—inthiscaseProposition38—wouldgointoeffect.•
I Proposition 38 Receives More Yes Votes.
Proposition38containsasectionindicatingthatitsprovisionswouldprevailandthetaxrateprovisionsofanyothermeasureaffectingsalesorPITrates—inthiscaseProposition30—wouldnotgointoeffect.Underthisscenario,thespendingreductionsknownasthe“triggercuts”wouldtakeeffectasaresultofProposition30’staxincreasesnotgoingintoeffect.
Fiscal Effect
 Additional State Revenues Through 2018–19.
OverthevescalyearsinwhichboththesalestaxandPITincreases wouldbeineffect(2012–13through2016–17),theaverageannualstaterevenuegainresultingfromthismeasure’staxincreasesisestimatedataround$6billion.Smallerrevenueincreasesarelikelyin2011–12,2017–18,and2018–19duetothephasinginandphasingoutofthehighertaxrates.
Revenues Could Change Signicantly From Year toYear.
Therevenuesraisedbythismeasurecouldbesubjecttomultibillion-dollarswings—eitheraboveorbelowtherevenuesprojectedabove.ThisisbecausethevastmajorityoftheadditionalrevenuefromthismeasurewouldcomefromthePITrateincreasesonupper-incometaxpayers.Mostincomereportedbyupper-incometaxpayersisrelatedinsomewaytotheirinvestmentsandbusinesses,ratherthanwagesandsalaries.Whilewagesandsalariesforupper-incometaxpayersuctuatetosomeextent,theirinvestmentincomemaychangesignicantlyfromoneyeartothenextdependingupontheperformanceofthestockmarket,housingprices,andtheeconomy.Forexample,thecurrentmentalhealthtaxonincomeover$1milliongeneratedabout$730millionin2009–10butraisedmorethantwicethatamountinpreviousyears.Duetotheseswingsintheincomeofthesetaxpayersandtheuncertaintyoftheirresponsestotherateincreases,therevenuesraisedbythismeasurearedifculttoestimate.
STATE SPENDING
Background
State General Fund Supports Many Public Programs.
RevenuesdepositedintotheGeneralFundsupportavarietyofprograms—includingpublicschools,publicuniversities,healthprograms,socialservices,andprisons.Schoolspendingisthelargestpartofthestatebudget.Earlierpropositionspassedbystatevotersrequirethestatetoprovideaminimumannualamount—commonlycalledtheProposition98minimumguarantee—forschools(kindergartenthroughhighschool)andcommunitycolleges(togetherreferredtoasK–14education).TheminimumguaranteeisfundedthroughacombinationofstateGeneralFundandlocalpropertytaxrevenues.Inmanyyears,thecalculationoftheminimumguaranteeishighlysensitivetochangesinstateGeneralFundrevenues.InyearswhenGeneralFundrevenuesgrowbyalargeamount,theguaranteeislikelytoincreasebyalargeamount.Alargeshareofthestateandlocalfundingthatisallocatedtoschoolsandcommunitycollegesis“unrestricted,”meaningthattheymayusethefundsforanyeducationalpurpose.
Proposal
 New Tax Revenues Available to Fund Schools and HelpBalance the Budget.
Therevenuegeneratedbythemeasure’stemporarytaxincreaseswouldbeincludedinthecalculationsoftheProposition98minimumguarantee—raisingtheguaranteebybillionsofdollarseachyear.Aportionofthenewrevenuesthereforewouldbeusedtosupporthigherschoolfunding,withtheremainderhelping

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