Attempted California tax hike: take two

Call it a case of déjà vu.

Two years ago, then-California Governor Arnold Schwarzenegger asked voters to approve a temporary tax increase to help fill the state’s massive budget deficit. I had just started working as a City Hall reporter in southern California at the time, and I clearly remember all the letters to the editor that ran at the time.

Voters answered with a resounding, “No!,” voting 2-to-1 against the emergency tax measure.

Now it seems California Gov. Jerry Brown is hoping voters will reconsider as he is expected to unveil a “multi-billion dollar tax initiative” that would raise income taxes on individuals making more than $250,000 a year and increase the state’s sales tax by half a cent. The hikes are expect to generate about $7 billion, according to the Los Angeles Times.

Brown, a Democrat, has argued that raising taxes is necessary to prevent further reductions but made a campaign promise not to do so without the approval of voters. After failing to win the necessary Republican votes to place a measure on the ballot as part of this year’s budget negotiations, the governor has vowed to do an end run by gathering voter signatures for his own initiative.

To some, a half a cent sales tax hike might not sound like a lot, but in many California counties the sales tax is already close to 10%.

That means the additional sales tax would bring taxes paid on a $50 dinner for two $500 television up to $5.13, the sales tax paid on a $500 television up to $551.25 and the sales tax paid on a $30,000 car up to $3,075.

As we discussed in my NYU macroeconomics class last week, tax theory tells us that flat levies, like sales taxes, tend to hit lower-income earners disproportionately. For someone on a fixed income, even a small sales tax hike can have budget effects, especially in a tax-heavy state like California.

The funny thing is that while Brown, who was attorney general at the time, ultimately supported Schwarzenegger’s proposal, he had first spoken out against the tax increases, telling the San Francisco Chronicle’s Spin Cycle blog that California “is one of the highest tax states around … so we’ve got to be competitive. We can’t drive all the jobs out and tax the few people who stay.”

Now it will be up the voters…again.

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