California’s Brown Said to Seek Income, Sales Taxes Increases

California Governor Jerry Brown and his allies are readying a ballot measure asking voters to boost income and sales taxes to offset a budget deficit, said a legislative aide with knowledge of the plan.

The November 2012 initiative would seek higher income taxes on individuals making $250,000 a year, or couples making $500,000, and raise the statewide sales tax by 0.5 percentage point to 7.75 percent, said the aide, who wasn’t authorized to discuss it on the record because it hasn’t been officially released. Both levies would expire in 2016, the person said.

Brown may be aiming for the electoral sweet spot of tilting the tax increases toward the wealthiest individuals, said Mark Baldassare, president of the nonpartisan Public Policy Institute of California. Still, Brown probably would need support from Republicans or business interests, not just his labor backers, to sell the proposal to voters, he added.

“Certainly taxing the wealthy is the most popular of the general taxes,” Baldassare said yesterday by telephone from the institute’s offices in San Francisco. “We have seen, generally, polling in the 60 percent range for taxing the wealthy. A lot depends on how you define ‘the wealthy.’”

Brown, 73, has been saying he would push a ballot measure after he failed to win legislative approval in June to extend $11 billion of higher taxes and fees that have since expired.

The Legislative Analyst’s Office has said California may face a $13 billion shortfall in the year that begins July 1 and that the sluggish economic recovery isn’t likely to produce $3.7 billion in revenue Brown built into the current budget. That’s likely to trigger a round of mid-year spending cuts in addition to the more than $12 billion slashed in June.

Tax Rates

The proposal, which Brown vetted with top Democratic lawmakers and union leaders, would increase income taxes for those making $250,000 by 1 percentage point, the person said. Those making between $300,000 to $500,000 would see their taxes rise by 1.5 percentage points while those making more than that would have their rate boosted by 2 percentage points, the person said.

California currently taxes income of $47,056 and above at a rate of 9.3 percent, according to the Franchise Tax Board. Income above $1 million is taxed at 10.3 percent, with the additional 1 percentage point earmarked for mental-health services under a ballot measure that passed in 2004.

Combined, the increases in both levies would raise an estimated $7 billion annually.

Brown declined to comment on his proposal when questioned by reporters yesterday after he testified before a legislative hearing on his proposal to curb public-employee pension costs. A Brown spokesman, Gil Duran, declined to confirm details of the governor’s plan or comment about it.

Broken

“The sales tax is going to hit a lot of people, not just higher-income,” said Assemblyman Jim Nielsen, a Gerber Republican and budget committee chairman. “Frankly, it’s just another of the continuing attempts to fund a budget that is broken. There have been no fundamental reforms in the past three budget cycles.”

The November ballot, when voters also will chose the next U.S. president, is shaping up to be one of the most crowded in the state’s history. More than 30 individual measures are pending at the state Attorney General’s office, which must write a summary and title before supporters can begin gathering signatures. At least 30 other measures have already been cleared and are now circulating.

The California Federation of Teachers is pushing a ballot measure that would increase income taxes to fund education.

Molly Munger, a Los Angeles civil rights attorney and daughter of Berkshire Hathaway Inc.’s vice chairman, Charles Munger, is pushing a broader income-tax increase to raise as much as $10 billion for education.

Corporate Taxes

A group started and financed by billionaire investor Nicolas Berggruen, which includes Google Inc. Chairman Eric Schmidt, former U.S. Secretary of State Condoleezza Rice and former Governor Gray Davis, said it will seek ballot initiatives to overhaul the state’s tax structure, adopt a tax on services and to ease corporate and personal income levies.

Brown’s tax plan stands a better chance if he can get others to withdraw their proposals, said John J. Pitney Jr., a politics professor at Claremont McKenna College.

“He needs to make a pitch to the sponsors of the other measures that this is the best shot to generate revenue for the state and that the more tax measures that are on the ballot, the more likely it is that voters will get confused,” Pitney said in a telephone interview from the college in Claremont, California. “Confusion isn’t a formula for success.”

To contact the reporters on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net; James Nash in Sacramento at jnash24@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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