The governor of the largest state in America has issued an ultimatum to its citizens: vote to raise your own taxes or the state will gut funding to public schools and public safety.
With California facing a $3.7 billion budget gap, Gov. Jerry Brown aims to bypass the state’s divided legislature and put a proposal on the ballot in November to raise taxes on individuals earning more than $250,000.
“The stark truth is that without new tax revenues, we will have no other choice but to make deeper and more damaging cuts to schools, universities, public safety and our courts,” Brown said Monday in a statement announcing his plan.
California has already slashed $15 billion from its 2011-12 budget, $4 billion of which came from higher education and services for the elderly and disabled.
But with revenues falling short of projections for this year, up to $3 billion in additional automatic cuts are set to go into effect in January, which would further reduce spending for education, healthcare and the prison system.
After losing a battle during the June budget-making process to offset such cuts with tax increases, Brown said he is “going directly to the voters because I don’t want to get bogged down in partisan gridlock as happened this year. The stakes are too high.”
“The last time there were tax and fee and revenue proposals on the ballot, every one of them was defeated in the last election,” said Jerry Nickelsburg, a senior economist at UCLA’s Anderson School of Management. “That does not bode well for new tax proposals that involve raising revenues for the state.”
Brown’s plan would raise an additional $7 billion per year for 10 years by increasing state income taxes by 1 percent for individuals earning $250,000 and by 2 percent people earning more than $500,000. It would also increase the state’s sales tax by half a percentage point to 7.75 percent.
“My proposal is straightforward and fair,” Brown said in the statement. “It proposes a temporary tax increase on the wealthy, a modest and temporary increase in the sales tax, and guarantees that the new revenues be spent only on education.”
His plea is a familiar one.
It is echoed by New York Gov. Andrew Cuomo, who called on his state’s legislature to make the tax system more “fair” by additional and higher income brackets for the wealthy.
“Simply put, to me ‘fairness’ dictates that the more you make the more you pay and the higher your income the higher your rate,” Cuomo wrote in a Monday op-ed.
President Obama is also pushing for the wealthy to pay more, teaming up with billionaire Warren Buffett to propose a “Millionaire’s tax” that ensures millionaires and billionaires do not pay a lower tax rate than the average American, a phenomenon he said was “the height of unfairness.”
“We have to ask ourselves, do we want to make the investments we need in things like education, and research, and high-tech manufacturing?” Obama said today at a speech in Kansas. “Or do we want to keep in place the tax breaks for the wealthiest Americans in our country? Because we can’t afford to do both.”
This recent onslaught of Democratic proposals to up taxes on high-income earners is due less to the growing inequality between America’s rich and poor, a gap that has been growing for decades, and more to the economic pain of the recent recession, said Alan Auerbach, director of the University of California Berkeley’s Robert D. Burch Center for Tax Policy and Public Finance.
“There is definitely more sentiment for it now than a few years ago,” Auerbach said. “A lot of people right now aren’t doing very well, so they are looking around for causes of the problem.”
But while states try to grapple with billions in budget shortfalls, federal lawmakers may beat them to the punch in raising high-income taxes.
Current federal government funding is set to run out Dec. 16, which will force Congress to pass a budget long before most states embark on their next budget-building cycle.
“If the two parties in Washington end up coming to some compromise that increases tax revenues it could make the hill even steeper for state level proposals,” said Dan Schnur, the director of the Jesse Unruh Institute of Politics at the University of Southern California.