PROPOSITION ANALYSIS
Proposition 30 – Governor's Sales Tax and Personal Income
Tax Increase
CALTAX POSITION
CalTax opposes Proposition 30. This initiative increases the state's reliance on volatile revenue,
increases taxes during tough economic times, and provides no structural reforms.
SUBJECT
Proposition 30 increases the state sales and use tax rate 0.25 percent for four years (from
January 1, 2013 through December 31, 2016); and increases personal income taxes (PIT) for
single taxpayers with taxable income exceeding $250,000 ‒ adding three new tax brackets of
10.3 percent, 11.3 percent, and 12.3 percent ‒ for seven years (2012 through 2018 taxable
years). The initiative is sponsored by Governor Jerry Brown and the California Federation of
Teachers.
MAJOR PROVISIONS
Tax Provisions:
•
Increases Sales and Use Tax Rate for Four Years. The state portion of the sales
and use tax rate would increase 0.25 percent, and the increase would be in effect for
four years, from January 1, 2013, through December 31, 2016.
•
Increases PIT Rates for Seven Years. For the 2012 through the 2018 taxable
years, marginal PIT rates would increase to:
o
10.3 percent for single filers with taxable income more than $250,000, but not
more than $300,000; head of household with taxable income more than
$340,000, but not more than $408,000; and joint filers with taxable income more
than $500,000, but not more than $600,000.
o
11.3 percent for individuals with taxable income more than $300,000, but not
more than $500,000; head of household with taxable income more than
$408,000, but not more than $680,000; and joint filers with taxable income more
than $600,000, but not more than $1 million.
CALIFORNIA TAXPAYERS ASSOCIATION
1215 K Street, Suite 1250 • Sacramento, CA 95814 • (916) 441-0490 • www.caltax.org
o
12.3 percent for individuals with taxable income more than $500,000, but not
more than $1 million; and head of household with taxable income more than
$680,000, but not more than $1 million.
o
12.3 percent, plus a 1 percent mental health surcharge for all personal income
taxpayers (individuals, head of household and joint filers) with taxable income
more than $1 million.
Proposed Marginal Personal Income Tax
Rates Under Proposition 30
(Using Brackets in Effect for the 2012 Taxable Year)
Single Filer's
Taxable Income*
Joint Filers'
Taxable Income*
Is Over
But Not
Over
Is Over
But Not
Over
$0
7,455
17,676
27,897
38,276
48,942
250,000
300,000
$7,455
17,676
27,897
38,726
48,942
250,000
300,000
500,000
$0
$14,910
14,910
35,352
35,352
55,794
55,794
77,452
77,452
97,884
97,884
500,000
500,000
600,000
600,000 1,000,000
500,000 1,000,000 1,000,000 2,000,000
Over 1,000,000
Over 2,000,000
Head-ofHousehold Filer's
Taxable Income*
Is Over
But Not
Over
$0
14,920
35,351
45,571
56,400
66,618
340,000
408,000
$14,920
35,351
45,571
56,400
66,618
340,000
408,000
680,000
Current Proposed
Marginal Marginal
Tax
Tax
Rate**
Rate**
1.0%
2.0%
4.0%
6.0%
8.0%
9.3%
9.3%
10.3%
9.3%
11.3%
9.3%
12.3%
(+ 1%
(+ 1%
Mental
Mental
Health
680,000 1,000,000 Health
Surcharge Surcharge
for joint
for joint
filers only) filers only)
9.3%
(12.3%
(+ 1%
+ 1%
Mental
Mental
Over 1,000,000
Health
Health
Surcharge) Surcharge)
*Income brackets shown here in effect for the 2012 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 2012 taxable year through the 2018 taxable
year.
Sources: Franchise Tax Board, Legislative Analyst's Office, and Proposition 30 text.
State Spending Provisions
The revenue generated by the measure's temporary tax increases would be included in
the calculations of the Proposition 98 minimum guarantee ‒ thus raising the guarantee.
A portion of the new revenue, therefore, would be used to support K-12 education and
community colleges, with the remainder presumably helping to balance the state budget.
However, basic-aid districts likely would not benefit from new revenue generated under
Proposition 30 because most, if not all, of education funding for these districts is
supported by property taxes.
CALIFORNIA TAXPAYERS ASSOCIATION
1215 K Street, Suite 1250 • Sacramento, CA 95814 • (916) 441-0490 • www.caltax.org
From an accounting perspective, the new revenue from the tax increase would be
deposited into a newly created state Education Protection Account (EPA). Of the funds
in the EPA, 89 percent would be provided to schools and 11 percent to community
colleges. Schools and community colleges could use these funds for any educational
purpose. The funds would be distributed the same way as existing unrestricted perstudent funding, except that no school district would receive less than $200 in EPA funds
per student and no community college district would receive less than $100 in EPA
funds per full-time student.
The 2012-13 budget requires that state spending be reduced by $6 billion if Proposition
30 fails. K-14 education and public universities are scheduled to take the biggest hit from
these "trigger cuts." The Legislature and governor could agree to change the budget to
avoid some or all of these cuts.
Local Government Provisions
This measure places into the state constitution certain provisions related to the 2011
realignment of state program responsibilities. In 2011, the state transferred to local
government (primarily counties) the responsibility for administering and funding several
programs, including correctional functions. The Legislature also approved legislation for
an annual allocation from the state to local governments about $6 billion, mostly in sales
and use tax revenue.
•
Guarantees Ongoing Revenue to Local Governments. This measure requires the
state to continue providing the tax revenue redirected in 2011 (or equivalent funds) to
local governments to pay for the transferred program responsibilities. The measure
also permanently excludes the sales tax revenue redirected to local governments
from the calculation of the minimum funding guarantee for schools and community
colleges.
•
Restricts State Authority to Expand Program Requirements. Local governments
would not be required to implement any future state laws that increase local costs to
administer the program responsibilities transferred in 2011, unless the state provided
additional money to pay for the increased costs.
•
Requires State to Share Some Unanticipated Program Costs. The measure
requires the state to pay part of any new local costs that result from certain court
actions or changes in federal statutes or regulations related to the transferred
program responsibilities.
•
Eliminates Potential Mandate Funding Liability. Under the state constitution, the
state must reimburse local governments when it imposes new responsibilities or
"mandates" upon them. Under current law, the state could be required to provide
local governments with additional funding (mandate reimbursements) to pay for
some of the transferred program responsibilities. This measure specifies that the
state would not be required to provide such mandate reimbursements. This provision
appears to conflict with the state's constitutional requirement under the Gann Limit,
which was co-sponsored and co-written by CalTax.
•
Ends State Reimbursement of Open Meeting Act Costs. The Ralph M. Brown Act
requires that all meetings of local legislative bodies be open and public. In the past,
the state has reimbursed local governments for costs resulting from certain
CALIFORNIA TAXPAYERS ASSOCIATION
1215 K Street, Suite 1250 • Sacramento, CA 95814 • (916) 441-0490 • www.caltax.org
provisions of the Brown Act (such as the requirement to prepare and post agendas
for public meetings). This measure specifies that the state would not be responsible
for paying local agencies for the costs of following the open meeting procedures in
the Brown Act.
CONFLICTING INITIATIVES
What Happens if Voters Approve Both Proposition 30 and Proposition 38? If
provisions of two measures approved on the same statewide ballot conflict, the state
constitution specifies that the provisions of the measure receiving more "yes" votes
prevail.
Proposition 30 and Proposition 38 both increase PIT rates and, as such, could be
viewed as conflicting, if both are approved. Both contain sections intended to clarify
which provisions are to become effective if both measures are approved by voters:
•
•
If 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.
If 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 PIT increases not going into effect.
FISCAL IMPACT
Unpredictability and Volatility
The revenue impact is unknown because taxpayers' behavior is unpredictable, and the
volatility described in the "CalTax Analysis and Policy Considerations" below makes it
difficult to forecast Proposition 30's state revenue gains from high-income taxpayers.
The Legislative Analyst's Office stated that the vast majority of the additional revenue
from the PIT increase "is volatile and difficult to predict." While wages and salaries for
upper-income taxpayers fluctuate to some extent, their investment income may change
significantly from one year to the next, depending upon the performance of the stock
market, housing prices, and the economy. Also, if faced with increased taxes, highincome taxpayers may choose to switch their investments to those that are nontaxable,
like U.S. Treasury Bonds, defer the sales of capital assets, including stock sales, or may
decide to simply move out of California.
Higher State Costs
State costs could be higher for the programs during the 2011 realignment than they
otherwise would have been, because the state loses discretion over cost increases for
the programs. Under Proposition 30, the state would be locked into funding these
programs. Even though constitutionally required, the state historically has not fully
funded all state mandates. Specifically, Proposition 30: (1) guarantees that the state will
continue providing funds to local governments to pay for them, (2) requires the state to
share part of the costs associated with future federal law changes and court cases, and
CALIFORNIA TAXPAYERS ASSOCIATION
1215 K Street, Suite 1250 • Sacramento, CA 95814 • (916) 441-0490 • www.caltax.org
(3) authorizes local governments to refuse to implement new state laws and regulations
that increase their costs, unless the state provides funding. These potential costs would
be offset in part by the measure's provisions eliminating any potential state mandate
liability from the 2011 program transfer and Brown Act procedures. The net fiscal effect
of these provisions is not possible to determine and would depend on future actions by
elected officials and the courts.
Higher Local Government Revenue
Under Proposition 30, local government revenue could be higher than it otherwise would
have been, because the state would be required to: (1) continue providing funds to local
governments to pay for the program responsibilities transferred in 2011, and (2) pay all
or part of the costs associated with future federal and state law changes and court
cases. This increased local revenue would be offset in part by the measure's provisions
eliminating local government authority to receive mandate reimbursements for the 2011
program shift and Brown Act procedures. The net fiscal effect of these provisions is not
possible to determine and would depend on future actions by elected officials and the
courts.
Government Forecasts
For the 2012-13 budget, the Legislative Analyst's Office (LAO) forecasts Proposition 30
would generate about $6 billion of additional revenue annually, while the Department of
Finance (DOF) forecasts $8.5 billion of additional revenue. The Board of Equalization
estimates that the sales and use tax portion of the increase would generate $1.3 billion.
The LAO forecasts that, in the following five fiscal years, there would be an average
annual increase in state revenue of $5.4 billion, while the DOF forecasts an average
annual increase in state revenue of $7.6 billion. In 2018-19, the measure's PIT increase
would be in effect for only six months of the fiscal year before expiring, and thus would
generate lesser amounts of state revenue. These estimates appear to be inaccurate, as
they are not based on dynamic modeling and do not reflect taxpayers' behavior,
including moving out of California.
Migration
According to the Tax Foundation, California has lost billions of dollars in tax revenue as
a result of net taxpayer migration since 1993. If Proposition 30 is approved by voters, the
impact on future migration numbers is unknown, as is the potential revenue impact.
However, if Proposition 30 is approved, migration may be accelerated.
Taxpayers have been eschewing California for years, according to the Tax Foundation.
From 1993 to 2009, the AGI migration-related figures for key states are shown in the
following chart.
CALIFORNIA TAXPAYERS ASSOCIATION
1215 K Street, Suite 1250 • Sacramento, CA 95814 • (916) 441-0490 • www.caltax.org
Taxpayer Migration Out of California Between 1993 and 2009
Destination State
Alaska
Nevada
Texas
Washington
Net California Returns Into
Destination State
2,024
171,317
110,128
75,137
Net AGI Into
Destination State
$63 million
$11.08 billion
$6.25 billion
$5.75 billion
Source: Tax Foundation
And the Manhattan Institute Report, using IRS data, concluded that California lost a net
aggregate income of more than $26 billion from resident migration out of California
during the years 2000-2010.
Based on Franchise Tax Board data for 2009, the three new top brackets would affect 3
percent of California taxpayers. However, if their taxes increase, it is unknown if these
high-income earners would move out of state or find non-taxable sources of income.
BACKGROUND
California's budget has posed significant challenges for lawmakers in recent years as
they have struggled to balance the state budget. The state's general fund has
experienced chronic shortfalls in recent years due to trends in state spending and
revenue collected. State budgetary problems have been caused by a number of factors,
including the economic downturn, overly optimistic revenue projections and continuous
overspending. To deal with the state's shortfalls, lawmakers have reduced program
expenditures, temporarily raised taxes, and taken a variety of other measures, including
various forms of borrowing from special funds and local governments.
Proposition 30 is one of three competing tax increase initiatives that will appear on the
November 6 ballot. The others are Proposition 38 (Molly Munger's PIT increase) and
Proposition 39 (mandating single sales factor earmarked for green projects). Below is a
table showing the differences between Propositions 30 and 38, both of which contain
competing PIT increase provisions.
Key Differences Between Proposition 30 and Proposition 38
Taxes Affected
PIT Rate Increase
SUT Rate Increase
Estimated Revenue Raised
Based on a Static Model
PIT Brackets Impacted
Affects Proposition 98
Operative Time
Proposition 30
PIT and SUT
1% - 3%
(Retroactive to 2012)
0.25%
Proposition 38
PIT
0.4% - 2.2%
(Starts in 2013)
N/A
Up to $8.5 Billion
$10 - $11 Billion
Graduated for >$250,000
Yes
7 years (PIT) and 4 years
(SUT)
Graduated for >$7,316
No
12 years
Sources: Text of Proposition 30 and Proposition 38.
CALIFORNIA TAXPAYERS ASSOCIATION
1215 K Street, Suite 1250 • Sacramento, CA 95814 • (916) 441-0490 • www.caltax.org
Example of a Single-Filer's Tax Liability
Under Proposition 30 and Proposition 38*
Single-Filer's
Taxable
Income
Current Tax
Liability
$35,000
$65,000
$125,000
$265,000
$550,000
$1,500,000**
$1,114
$3,648
$9,228
$22,248
$48,753
$142,103
Tax
Liability
Under
Prop. 30
No Change
No Change
No Change
$24,409
$58,774
$185,635
Tax
Liability
Under
Prop. 38
$1,308
$4,288
$10,877
$26,432
$58,402
$171,252
Net Tax
Increase
Under
Prop. 30
No Change
No Change
No Change
$2,161
$10,021
$43,532
Net Tax
Increase
Under
Prop. 38
$194
$640
$1,649
$4,184
$9,649
$29,149
* Calculations are based on the Franchise Tax Board "Schedule X" income tax brackets for 2012.
**Calculations include a 1 percent surcharge for mental health services for taxpayers with a taxable income in excess
of $1 million.
Sources: Text of Proposition 30 and Proposition 38
Ordering of Ballot Propositions
Qualified initiatives traditionally are given numbers by the California Secretary of State
and are placed on the ballot in the order in which signatures were submitted and they
qualified for the ballot. Molly Munger's campaign team submitted signatures for her
initiative before Governor Brown's team submitted signatures for the rival Proposition 30.
In June, Governor Brown signed SB 1039 (Ch. 12-147), a bill that changes the way
ballot propositions are numbered and ordered on the ballot. The change benefits his
Proposition 30, because it says that all proposed constitutional amendments will appear
first on the ballot, before any proposed state statutes. The Munger measure is a
proposed state statute and, as a result of this new legislation, her measure appears well
after Governor Brown's measure.
As a result of SB 1039, Ms. Munger went to court seeking relief from the ballot-ordering
change. Judge Timothy Frawley issued a temporary restraining order (TRO) on June 29,
forbidding Secretary of State Debra Bowen from assigning ballot numbers based on the
new ballot-numbering system until he had a chance to fully assess the merits of the
lawsuit. Ms. Munger's lawsuit said that although the law that changes the way ballot
propositions appear on the ballot was part of a package of budget bills, it in fact "was in
no way, shape or form related to the budget." The lawsuit also contended that the bill is
an "abuse of political process and legislative power." Ultimately, however, the judge
ruled July 9 that Governor Brown's change could proceed.
CALTAX ANALYSIS AND POLICY CONSIDERATIONS
The state's PIT has marginal rates ranging from 1 percent to 9.3 percent on the
portions of a taxpayer's income in several income brackets, with the 9.3 percent rate
applying to taxable income in excess of $48,942 for single filers and $97,884 for joint
filers. PIT revenue is deposited into the general fund, and totaled $49.5 billion in
2010-11. A 1 percent surcharge applies to taxpayers with taxable income that
exceeds $1 million, with associated revenue dedicated to mental health services.
CALIFORNIA TAXPAYERS ASSOCIATION
1215 K Street, Suite 1250 • Sacramento, CA 95814 • (916) 441-0490 • www.caltax.org
California's sales and use tax (SUT) is levied on the final purchase price of tangible
consumer goods, except for food and certain other items. The SUT rate consists of both
a statewide rate and a local rate. The current statewide rate is 7.25 percent. Some of the
revenue generated from the SUT is earmarked, and the balance is deposited into the
general fund. Localities also have the option of imposing, with voter approval, add-on
SUT rates to raise revenue for cities, counties, or special districts. As a result, SUT rates
in California differ by county and locality, with an average combined state-local rate of
about 8.1 percent.
Ballot-Box Budgeting
The use of an initiative to lock specified levels of funding into the state constitution for
various programs, also known as ballot-box budgeting, has severely limited the state's
ability to reduce spending or redirect resources in difficult economic times.
Notwithstanding the potential importance of some of these programs, mandating funding
levels for specific programs restricts the state's ability to make cuts.
Increases Income Tax Volatility
The state budget already relies too heavily on the very volatile personal income tax, and
this measure would exacerbate this problem. Policymakers have repeatedly blamed
California's current fiscal crisis on the state's heavy reliance on income tax revenue. The
state's revenue stream follows the boom-and-bust business cycle in part because of
overdependence on personal income taxes. Revenue volatility is worsened by raising
income taxes. Most of the income reported by California's upper-income filers is related
in some way to their capital investments, rather than wages and salary-type income. In
2008, for example, only about 37 percent of the income reported by PIT filers reporting
more than $500,000 of taxable income consisted of wages and salaries. The rest
consisted of capital gains and pass-through entity income. While high-income filers'
wage and salary income is volatile to some extent (due to the cyclical nature of bonuses,
among other things), their capital income is highly volatile from one year to the next. For
example, the current 1 percent surcharge for mental health services on taxable income
in excess of $1 million generated about $734 million in 2009-10, but raised as much as
$1.6 billion in previous years. Given this volatility, estimates of the revenue to be raised
by this initiative will change between now and the November election, as well as in
subsequent years.
Fails to Address Reforms
Proposition 30 does not address any budget or fiscal reforms, nor does it address
education program inefficiencies or accountability concerns. Before raising taxes,
lawmakers should consider such reforms and efficiency measures ‒ higher taxes may
not be necessary if other reforms are put in place. Experience shows that reforms don't
occur until there is financial incentive.
Before placing Proposition 30 on the ballot, lawmakers did not consider addressing the
state's debt or the state's spending limit. Instead, the Legislature approved funding for a
$200 billion bullet train, legislative staff had their pay increased, the State Parks
Department fiscal scandal was uncovered, a mockery of the budget process ensued,
and state spending grew by $5 billion.
What confidence do taxpayers have that their money will be spent wisely? Lawmakers
ought to be asking fiscal policy experts: "How are we doing? How can we do things
CALIFORNIA TAXPAYERS ASSOCIATION
1215 K Street, Suite 1250 • Sacramento, CA 95814 • (916) 441-0490 • www.caltax.org
better?" In April 2012, CalTax offered lawmakers more than $7.3 billion worth of tangible
reforms in our Government Cost Savings Report, which could have helped mitigate
budget constraints. Raising taxes should not be the first line of action in attempting to fix
California's dysfunctional budget process and structural deficit ‒ only reforms can
accomplish this.
PIT Increase Is Retroactive, Affected Taxpayers Will Be Underpaid
If Proposition 30 is approved by voters in November, it will impose a retroactive tax
increase, more than 10 months into affected taxpayers' 2012 taxable year. Many of
these taxpayers will be severely underpaid on their 2012 tax liabilities. This
underpayment would affect both taxpayers who are employees subject to withholding
and taxpayers subject to estimated tax payments. It is unclear whether the 2012 tax year
withholding tables will be changed to reflect the new tax rates, and if so, to what extent
they will be changed. If the tables are fully changed, affected employees could have just
two months to accommodate increased PIT withholding to catch up to their new tax
liabilities. In such a scenario, some taxpayers subject to the revised withholding tables
may find themselves with very small paychecks at the end of the year, as they try to
catch up to their liabilities. Proposition 30, however, provides that affected taxpayers
who are underpaid could be held harmless from the FTB underpayment penalty under
R&TC Section 19136.
Sales Tax Increase Hurts Manufacturers and Other Businesses
California is one of the few states that requires businesses to pay sales and use tax on
manufacturing and R&D equipment they buy and use in the state. This makes California
a very expensive state for manufacturers and companies engaged in R&D work to
operate in, particularly when the sales tax rate is close to 10 percent in some California
counties. This extra cost alone can be reason enough for companies not to locate
manufacturing and R&D operations in California. The current sales tax imposition on
business inputs violates several tax policy principles, including economic growth,
efficiency, equity, and simplicity. This causes a number of economic distortions,
including what economists call "pyramiding": Tax imposition at multiple levels such that
the effective tax rate exceeds the retail sales tax rate. A sales tax on manufacturing and
other equipment imposes a particular burden on in-state businesses selling in regional or
national markets. These businesses are less able to pass the added cost on to
customers, and thus, are likely to reduce their activity in California, providing fewer jobs
and reducing in-state investments in equipment, vehicles and buildings.
PIT Increase May Hurt Elderly Homeowners, Some Not Wealthy
Taxpayers, especially seniors, who have lived in their homes for many years and who
have a low tax basis may use the capital gains exclusion, but still have substantial gains
to report. These taxpayers would be hit with heavier tax liabilities under Proposition 30.
For example, if a widow sells her Silicon Valley home that she has lived in for 35 years,
she may have to report a gain of $600,000, thus subjecting her to a 12.3 percent tax rate
under Proposition 30, instead of a 9.3 percent tax rate absent Proposition 30. This would
result in an $18,000 tax increase for the widow.
PIT Increase May Hurt Owners of Pass-Through Entities
Owners of pass-through entities (S corporations, estates and trusts, partnerships, and
LLCs) that are taxed under California's Personal Income Tax Law could face a tax
CALIFORNIA TAXPAYERS ASSOCIATION
1215 K Street, Suite 1250 • Sacramento, CA 95814 • (916) 441-0490 • www.caltax.org
increase under Proposition 30. Unlike federal law, California does not have a favorable
tax rate for capital gains. Rather, capital gains are taxed as ordinary income. With an
increase in personal income taxes under Proposition 30, the extra state tax paid on
capital gains can be significant, particularly when a taxpayer is in an alternative minimum
tax position and is unable to get a federal deduction for the state taxes paid.
Impact of Budget Triggers on School Funding
Under current law, a portion of the money for schools spent in one fiscal year comes out
of the state budget for the subsequent budget year. This is an accounting maneuver or
"deferral" that the state has used for several years. Proposition 30 reverses some of this
deferral; however, it does not provide additional funds for school spending, since the
schools are spending the money as if the deferral does not exist.
If Proposition 30 fails and the triggers are pulled, according of the Legislative Analyst's
Office: "The backup plan rescinds the proposal to pay down outstanding K-14 payment
deferrals, resulting in $2.2 billion in general fund savings. The rescinding of these
payments would have little programmatic effect, but it may require some school districts
and community colleges to increase their short-term borrowing."
Tax Increases Harm the Economy, Hurt Small Businesses
Raising taxes in the midst of a fragile economy, high foreclosure rates and a high
unemployment rate would hurt recovery efforts. Increasing personal income taxes would
hurt many small, unincorporated businesses that pay personal income taxes. Currently,
in California, 70 percent of all tax returns report business activities as sole
proprietorships. A tax increase would inhibit their ability to thrive in this state.
Sales Tax Increase May Mean Gas Tax Increase
The proposed sales tax increase would appear to be a trigger for a gas tax increase
under the "Fuel Tax Swap." The Fuel Tax Swap provides for a combination of lowering
the sales and use tax rate applicable to sales of motor vehicle fuel, excluding aviation
gasoline, and simultaneously raising the state excise motor vehicle fuel tax, effective
July 1, 2010. The Board of Equalization is required to adjust the gas tax rate for motor
vehicle fuel to bring in the same amount of revenue that would have been raised if
gasoline was no longer exempt from sales tax. R&TC Section 7360(b)(2) states, "…the
board shall… adjust the rate …in a manner as to generate an amount of revenue that
will equal the amount of revenue loss attributable to the exemption provided by Section
6357.7 based on estimates made by the board …"
Capital Gains – Lock-In Effect
Proposition 30 increases income tax on capital gains by up to 3 percent. The effect of
this change is to increase the "lock-in" effect that causes taxpayers to reduce sales of
assets, particularly stock. As an example, if a stock is providing a dividend of 4 percent,
and the investor is seeking a 4 percent return, it will be less financially desirable to sell
the stock and invest in another, due to the reduction of the principal because of
increased taxes. Simply, there will be less capital to invest and one would have to buy a
potentially more risky stock with a higher dividend payout to get the same return.
Because of federal tax rates combined with the high California tax rate imposed by this
proposal, some taxpayers will be financially better off keeping the stock they own, rather
CALIFORNIA TAXPAYERS ASSOCIATION
1215 K Street, Suite 1250 • Sacramento, CA 95814 • (916) 441-0490 • www.caltax.org
than selling it, as they will have up to only 75 percent of the proceeds to reinvest in
another stock, since as much as 25 percent could be lost to taxes.
Studies have concluded that the "lock-in" effect reduces the amount of capital for
investment, particularly for new start-ups and companies in emerging sectors.
BALLOT SUPPORTERS AND OPPOSITION
The supporters and opponents below are only those who signed the ballot arguments
and rebuttals in the Official Voter Information Guide for the November 6 statewide
election.
PROPOSITION 30 SUPPORTERS
Jennifer A. Waggoner – President, League of Women Voters of California
Dean E. Vogel – President, California Teachers Association
Keith Royal – President, California State Sheriffs' Association
Joshua Pechthalt – President, California Federation of Teachers
Scott R. Seaman – President, California Police Chiefs Association
PROPOSITION 30 OPPONENTS
Jon Coupal – President, Howard Jarvis Taxpayers Association
Tom Bogetich – Executive Director (Retired), California State Board of Education
Doug Boyd – Member, Los Angeles County Board of Education
Joel Fox – President, Small Business Action Committee
John Kabateck – Executive Director, National Federation of Independent
Business/California
Kenneth Payne – President, Sacramento Taxpayers Association
CALIFORNIA TAXPAYERS ASSOCIATION
1215 K Street, Suite 1250 • Sacramento, CA 95814 • (916) 441-0490 • www.caltax.org