The LWVC endorses Proposition 55, which would extend the existing income tax rates that were put in place by Proposition 30 of 2012. These taxes bring in revenue essential to funding the services that Californians, especially California’s children, need and deserve.
Over the past twenty-five years, the League has consistently supported revenue solutions as part of balancing the state’s budget. In 2012 the League supported Proposition 30, which instituted a temporary one-quarter cent increase in the state’s sales tax as well as an increase in the income tax rates for the highest income (> $500,000 for married couples) California residents. Under Proposition 30, the sales tax increase will expire at the end of 2016, while the increased income tax rates will expire at the end of 2018.
The increased revenue, currently around $7 billion per year, has made it possible for the state to improve funding for K-14 education and to restore some program cuts that were made during the great recession. However, school funding has still not returned to pre-recession levels.
Under Proposition 55, the sales tax increase will expire at the end of this year, but the current higher income tax rates will remain in place until 2030. Proposition 55 allocates the proceeds from this increased revenue via formulas that interact with the requirements of previous ballot measures. Because of Proposition 98, approximately 50 percent will go to supporting K-14 education. Up to $2 billion/year will go to Medi-Cal (the state’s version of Medicaid) to provide health care for children and their families. A large portion of the tax revenue raised by this measure comes from taxes on capital gains: when revenue from this source is high enough it goes to reducing state debt and to paying for infrastructure under Proposition 2, the “rainy day fund” measure passed in 2014.
The extent to which this income tax revenue has improved California’s fiscal situation cannot be emphasized too much. It has increased state funding of K-14 education; a study by the California Budget and Policy Center shows that with these additional funds the student-teacher ratio in public schools has declined slightly, ending several years of increases. Some, although not all, cuts to social safety net programs and health care have been restored. The state has been able to fund its Budget Stabilization Fund (“Rainy Day Fund”) for the first time ever, so that the state will be better able to withstand a recession. California has also set aside the funds to repay the deficit reduction bonds issued in the early 2000s.
Although California’s financial situation is far better than it was six years ago, a rosy future is not assured. In 2014 California ranked 35th out of the 50 states and the District of Columbia in per pupil spending for K-12 education. California has the lowest reimbursement rates for Medi-Cal/Medicaid in the nation.
California still needs this revenue. The defeat of Proposition 55 would be the loss of up to $4 billion/year for K-14 education, meaning the return of layoffs, elimination of programs, and larger class sizes. Defeat would also necessitate another $3 billion of cuts elsewhere in the budget.
The League has strong positions supporting adequate revenue for public education as well as favoring taxes based on ability to pay, with a preference for income-based taxes, and thus we strongly support Proposition 55.