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This week, California Governor Jerry Brown recommended a five-year extension of temporary tax increases first enacted in 2009 and a reduction of a corporate tax break to help close a budget shortfall of more than $26 billion over the current and next fiscal years. Governor Brown also proposed more than $12 billion in spending reductions, including deep cuts to health and human services and higher education.
The temporary tax increases, proposed for extension through 2015, include: a 0.25 percentage point personal income tax rate surcharge, a reduction in the amount of the dependent credit, a 1-cent increase in the state sales tax (maintaining the state sales tax rate at 7.25 percent), and a 0.5 percentage point increase in the Vehicle License Fee.
Governor Brown also proposed raising close to $1 billion by changing a recent law which allows corporations to choose the method for apportioning their profits to California. Under his plan, most corporations must use what is known as the single-sales factor apportionment formula.
The catch is that the Governor wants voters to make the decision in a special election this June on whether or not to accept the extension of the temporary tax increases. If the taxes are rejected at the polls, California lawmakers will need to find at least an additional $9 billion in spending cuts. But, before voters even get the chance to decide the fate of the state’s budget, Governor Brown must secure enough support from state lawmakers (a two-thirds majority is required) to get the extension on the ballot.
The other hurdle? Californians were asked to support extending these very same taxes two years ago and the proposal was soundly defeated at the polls. This time around Governor Brown is making the choice clear: either vote to approve the temporary taxes, or see a drastic reduction in K-12 spending which is held harmless in his current proposal.