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On November Ballot Californians Will Be Asked to Extend Tax Increases

What is Proposition 30?

In 2012, California voters approved temporary tax increases until 2018. This November, they will be asked to extend some of those higher taxes for 12 more years. The proposed measure would levy higher income taxes on individuals earning more than $250,000 a year in order to fund education and healthcare programs. The proposal is supported by the California Teachers Association, Service Employees International Union and California Association of Hospitals and Health Systems. The California Chamber of Commerce, however, opposes the measure.

Whenever new tax legislation is proposed or new tax laws are enacted, it is important for individuals, particularly high earners, to have knowledgeable tax attorneys at their side.

Details of the Proposition

For fiscal years 2018-19 through 2030-31, the Department of Finance (DOF) will, if the proposal is enacted, determine how much of the increased revenue will be available for the Medi-Cal program. DOF will have two primary responsibilities: (1) estimating the amount of revenue raised by the measure and (2) subtracting that amount from the estimated necessary school and community college cost increases and certain other governmental costs, like the expense of increased numbers of people in state government sponsored programs.

Once the DOF has made these calculations, 50 percent of the resulting amount, or $2 billion, whichever is less, will be distributed to the Medi-cal program. There is a provision in the proposal that allows, during a budgetary emergency, for this allocated amount to be reduced in proportion to the reduction in overall General Fund spending.

What Proposition 30 Is Intended to Accomplish

The purposes of Proposition 30 are as follows:

  • To increase Medi-Cal funding
  • To increase State tax revenues
  • To increase school and community college funding
  • To increase budget reserves and debt payments

Once the requirements have been met and the increased tax monies have been used for the above purposes, the state will be able to use the funds for any other budgetary purpose. The way such monies are used will depend on legislative and gubernatorial decisions.

What happens if there is money left over?

It is difficult to predict exactly how much money will be needed for Proposition 30’s designated purposes. If the state collects more money than is needed between 2019 and 2030, part of the measure’s revenue will go to a one-time taxpayers’ rebate and a one-time school and community college allocation.

How much money will Proposition 30 generate?

The money generated by Proposition 30 will depend on the stock market and other economic variables. It is estimated that in 2019 (the first year that the proposal might take effect) with a weak stock market and economy the higher taxes might generate $5 billion in increased revenue, whereas with a strong stock market and economy the higher taxes might generate as much as $11 billion. In subsequent years, the revenue generated would similarly fluctuate with economic trends.

Whenever there is a change in tax law proposed, individuals, particularly those in higher tax brackets should have the support of an experienced tax attorney who can help to clarify new regulations and protect their assets.

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