California, education

Vote No on Proposition 38 – Molly Munger’s Tax Initiative

This is the nineth part of a series of posts analyzing California’s propositions:

An Unfortunate Proposition…

There are two revenue-increasing propositions before the public. There is Proposition 30, the good one backed by Jerry Brown, and Proposition 38, the bad one. You should vote yes on Proposition 30 and no on Proposition 38. Unfortunately, that’s probably going to confuse a lot of people.

More below.

Proposition 38 is pushed by Molly Munger, a well-meaning attorney (funny how so many of the propositions have such well-meaning intentions yet bad consequences).

Basically, it’s an income tax increase. The tax increase is pretty huge; it catches even lower-income residents. Individuals with income over $7,316 and families or joint filers with income over $14,632 will have their taxes raised. The chart below, taken from the legislative analyst, explains in more detail:

Current and Proposed Personal Income Tax Rates Under Proposition 38
Single Filer’s

Taxable Incomea		 Joint Filers’

Taxable Incomea		 Head-of-Household

Filer’s

Taxable Incomea		 Current

Marginal

Tax Rateb		 Proposed

Additional

Marginal Tax Rateb

$0-$7,316
$0-$14,632
$0-$14,642
1.0%
–

7,316-17,346
14,632-34,692
14,642-34,692
2.0
0.4%

17,346-27,377
34,692-54,754
34,692-44,721
4.0
0.7

27,377-38,004
54,754-76,008
44,721-55,348
6.0
1.1

38,004-48,029
76,008-96,058
55,348-65,376
8.0
1.4

48,029-100,000
96,058-200,000
65,376-136,118
9.3
1.6

100,000-250,000
200,000-500,000
136,118-340,294
9.3
1.8

250,000-500,000
500,000-1,000,000
340,294-680,589
9.3
1.9

500,000-1,000,000
1,000,000-2,000,000
680,589-1,361,178
9.3
2.0

1,000,000-2,500,000
2,000,000-5,000,000
1,361,178-3,402,944
9.3
2.1

Over 2,500,000
Over 5,000,000
Over 3,402,944
9.3
2.2

a  Income brackets shown were in effect for 2011 and will be adjusted for inflation in future years. Single filers also include married individuals and registered domestic partners (RDPs) who file taxes separately. Joint filers include married and RDP couples who file jointly, as well as qualified widows or widowers with a dependent child.

b  Marginal tax rates apply to taxable income in each tax bracket listed. For example, a single tax filer with taxable income of $15,000 could have had a 2011 tax liability under current tax rates of $227: the sum of $73 (which equals 1 percent of the filer’s first $7,316 of income) and $154 (2 percent of the filer’s income over $7,316). This tax liability would be reduced-and potentially eliminated-by personal, dependent, senior, and other tax credits, among other factors. The proposed additional tax rates would take effect beginning in 2013 and end in 2024. Current tax rates listed exclude the mental health tax rate of 1 percent for taxable income in excess of $1 million.

In contrast, Proposition 30’s income tax only affects individuals with income over $250,000, joint filers with income over $500,000, and head-of-household’s with over $340,000.

The revenue raised goes mostly to education, with the rest to repay state debt. Proposition 38’s revenues go to a new fund called the California Education Trust Fund. There are three ways the revenue is distributed: to schools, to ECE (Early Care and Education) programs, and to state debt. The amount given to each each differs per year, although schools get the majority and ECE gets the least. Of the money given to schools 70% goes to education program grants; 18% goes to low-income student grants; and 12% goes to training, technology, and teaching materials grants. Of the amount given to ECE programs, a minority goes to restoring cuts in current ECE programs and the rest goes to expanding the programs (e.g. 51% goes to subsidized preschool for children aged three to five form low-income families). The rest pays state debt. From the legislative analyst:

Allocation of Revenues Raised by Proposition 38
2013-14

and

2014-15		 2015-16

and

2016-17		 2017-18

Through

2023-24
Schools 60% 60% 85%
Early Care and Education (ECE) 10 10 15
State debt payments 30 30a –a
Totals 100% 100% 100%
Growth limit on allocations to schools and ECE programsa No Yes Yes
a  Reflects minimum share dedicated to state debt payments. Revenues beyond growth limit also would be used to make debt payments.

It’s all very long and complicated. In the California official voter information guide, the legislative analysis of Proposition 38 is the longest. Reading Proposition 38’s legislative analysis made my head spin (even more than Proposition 31’s legislative analysis). I don’t like voting for propositions that make my head spin.

…Which Might Actually End Up Cutting Education!

Somewhat amazingly, Proposition 38 might not prevent huge education cuts next year. This is because the legislature passed a series of spending reduction called “trigger cuts” that would take effect if Proposition 30 was not approved. These include $5.354 billion from schools and community colleges, as well as $250 million each from the University of California and California State University systems. Tuition would certainly be raised at California state universities under these trigger cuts.

If Proposition 38 is approved and gets more votes than Proposition 30, then those education trigger cuts will still take place.

That means that under Proposition 38, college students at California state universities will still have their tuition raised (as well as their taxes). There will be both huge tax increases and huge spending cuts for education this year. Then next year there will be huge spending increases for education. That’s a terribly unstable situation.

Remember: Proposition 30 is the good proposition, Proposition 38 the bad one. Vote yes on Proposition 30 and no on Proposition 38.

–inoljt