Wealthiest 1 Percent Would Provide Most of the New Revenues Raised by Proposition 30

A new CBP Budget Brief released today looks at Proposition 30, which was placed on the November 6 ballot by Governor Jerry Brown via the initiative process. Proposition 30 would increase personal income tax rates on very-high-income Californians for seven years and raise the state’s sales tax rate by one-quarter cent for four years. The CBP has endorsed this ballot measure.

Proposition 30 would take an important step toward addressing California’s budget gap over the next few years. The measure would provide much-needed new revenues – an estimated $6 billion per year on average when fully implemented, according to the Legislative Analyst’s Office – and would help shield public priorities, such as education and safety-net supports for families hard-hit by the recession, from further budget cuts.

State General Fund revenues are lower today as a share of the economy than in all but two of the past 40 years. The state’s budget challenges are partly the result of a steep drop in revenues brought about by the Great Recession, but the shortfalls also reflect years of tax cuts, including large, permanent corporate tax breaks enacted during the depths of the downturn. 

Lacking sufficient revenues, lawmakers bridged recent years’ budget gaps through deep spending cuts to virtually all areas of the budget. To take one example, the state reduced Proposition 98 spending for K-12 education by $7.4 billion between 2007-08 and 2011-12 – a drop of $1,271 per student.

Proposition 30 raises new revenues by asking those who have benefited most from the economic growth of recent decades to contribute the most to laying the groundwork for California’s future prosperity. As shown in our Budget Brief, the measure raises nearly 80 percent of its revenues from the wealthiest 1 percent of Californians, who have annual incomes over a half-million dollars and who experienced substantial income gains over the past two decades. The average inflation-adjusted income of the top 1 percent was 82.0 percent higher in 2010 than it was in 1987, while the average inflation-adjusted income for Californians in each of the bottom four fifths was substantially lower than in 1987.

Low- and middle-income Californians  – who bore the brunt of the Great Recession’s effects on the job market – would see very small tax increases under Proposition 30, on the order of $24 to $55 annually in sales and personal income tax increases combined. In contrast, those in the top 1 percent would pay an additional $21,883 in taxes on average.

Proposition 30 presents voters with the opportunity to begin reversing a decade of disinvestment in California. The measure looks to the state’s wealthiest to provide the bulk of the revenues that would help stabilize the state budget and begin to restore funding for education and other critical public services, so that all Californians can share in the state’s future prosperity.

­– Hope Richardson

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