Bloomberg News

California Tax Plans May Have Broader Reach, Lockyer Says

May 31, 2012

California voters may increase taxes on top earners and also raise them for some of the lowest-paid residents if two competing initiatives on the November ballot both pass and are woven together.

Governor Jerry Brown wants to raise taxes on incomes of more than $250,000 a year. At the same time, Molly Munger, the daughter of Berkshire Hathaway Inc. (A:US)’s vice chairman, Charles Munger, proposes to raise them for those earning more than $7,316. If both ballot measures are approved, their effects could be combined, state Treasurer Bill Lockyer said.

“I think it’s quite possible that both of them could pass,” Lockyer said yesterday in an interview in Bloomberg’s San Francisco office. “So then we get into this much more complicated issue of integrating the two.”

Brown, a 74-year-old Democrat, took office last year with a vow to repair the crippled finances that have plagued the world’s ninth-biggest economy for nearly a decade. He’s said higher taxes are needed to prevent further cuts to schools, welfare and public safety than lawmakers have already made, closing $100 billion of deficits since 2007.

Tax Increases

Brown’s plan would temporarily boost rates on incomes starting at $250,000. Those making $1 million or more, now taxed at 10.3 percent, would pay 13.3 percent, the most of any state. He would also raise the statewide sales tax to 7.5 percent from 7.25 percent. Together, the increases would raise about $9 billion in the first year and more than $7.6 billion after that for a total of seven years.

A USC Dornsife/Los Angeles Times Poll released May 29 found that 59 percent of voters surveyed support Brown’s proposal, down from 64 percent in March.

Munger’s plan would temporarily increase taxes on income of $7,316 or more, from 0.4 percent for the lowest earners to 2.2 percent for individuals making more than $2.5 million a year. It would raise $10 billion annually for 12 years. Under Munger’s proposal, 30 percent of the added revenue would pay school-bond debt for the first four years. For the remaining eight years, all the money would go to education.

Voter Surveys

Her campaign said May 7 that internal polling shows support for her measure is split 45 percent to 45 percent. A February survey by the Field Poll found that 48 percent opposed her plan while 45 percent support it.

Voters are more likely to favor Munger’s plan because it targets education, according to Jan Perry, a Los Angeles City Council member.

“Upper-income people may not like” the Munger plan, Perry, who is running for mayor in the nation’s second-biggest city next year, said today in an interview in Bloomberg’s Los Angeles office. “In California, people see the efficacy of spending more money on our educational system, because you obviously create a stronger state and a more well-trained workforce down the road.”

Lockyer, who previously served two terms as the state’s attorney general, said the courts would probably determine how to combine the measures and how to split the proceeds. The measure with the most votes would probably take precedence where the two overlap, he said.

Provisions Conflict

“The provisions conflict at the top but they don’t at the lower level, so you could have Munger’s impose the increase at the lower level and the governor’s, if it got more votes, at the top end,” Lockyer said of the income-tax rates.

Brown, concerned that voters would balk at facing two tax proposals, failed to persuade Munger to drop her measure. He succeeded in reaching a deal with another competitor, the California Federation of Teachers, to combine their plan with his.

“I haven’t taken a position on either of them yet, but I have a greater affinity for that Munger initiative,” said Perry, who cautioned that neither proposal may pass. “I just hope people don’t go to the ballot box and vote no on everything, which is what people are sometimes inclined to do.”

The California Secretary of State is currently reviewing signatures collected for both measures before certifying them for the November election.

Voters in November may decide another initiative pushed by Thomas Steyer, chairman of San Francisco-based hedge fund Farallon Capital Management LLC, which would require businesses to figure their taxes solely on in-state sales.

That measure would raise about $1 billion annually, with half set aside for the state’s general fund and half for energy- efficiency programs. Steyer’s group turned in 955,000 signatures May 4, more than enough to qualify.

To contact the reporter on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net


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