Thursday, October 18, 2012

Yes on Proposition 38, Income Tax increases to Pay for Education

Official Title: Tax to Fund Education and Early Childhood Programs. Initiative Statute

Proposition 38 would increase California income tax rates to fund public education at every level as well as early childhood development programs. Education is good for individuals and is also at the heart of our democratic culture. Education funding went up during the housing boom, but even then was largely inadequate. It has declined since 2008, and is set to decline more next year if both Proposition 38 and Proposition 30 fail to pass.

The other side of the equation is: who will pay this tax? In California we already have a relatively high state income tax and state sales tax. The income tax, however, is quite progressive, so that low income families pay little or no tax. The problem for the state is that real estate taxes, which are the primary funding source for public schools, are not only capped, but in most cases seriously undervalue the real estate. In my mind reforming the old Proposition 13, which got us into this mess, would be a better way of raising funds. Apparently no one thinks a proposition amending 13 could pass muster with the voters.

Proposition 38 raises income taxes taxes by 0.4% at the low end ($7,316 for a single citizen, so about $35 per year, but at that level the exemption would bring the tax to zero). It progresses gradually, with the bulk of people probably in the $38,000 to $48,000 bracket being increased from 8% to 9.4%, about $500 per year. Currently the highest tax rate, 9.3% begins at $48,000. Proposition 38 would make for graduated increases in the top bracket up to a peak of 2.2% additional for those lucky folk making $2.5 million or more per year. That would be about $55,000 additional tax at that level.

Fair enough, but while the lower middle class in particular complains about high costs at state colleges, they don't want to be taxed to pay for it. A soak the rich scheme would have had a better chance of passing, but the middle class is so large that failing to increase its taxes really limits how much money can be raised.

Interestingly, the woman behind Proposition 38, Molly Munger, has a lot of money but did not get it through having a high income and saving parts of it. She inherited her vast fortune from Big Daddy Charlie Munger, best known for his association with Warren Buffet. California's inheritance tax is pretty minimal, but for some reason no one looks at that as a source of funding. And of course the rich, represented by Mitt Romney, want to end the national inheritance tax altogether.

Ms. Munger ran some attack ads against Proposition 30, which she sees as undercutting Proposition 38. Proposition 30 barely raises enough money to keep the education budget at current levels and balance future budgets, so you can see why teachers & professors mostly favor 38. The problem is 38 is unlikely to pass (because it taxes the working and middle classes). Attacking 30, causing it to fail along with 38, would be yet another disaster for our schools.

Vote for Proposition 38. It is the right thing to do. But your vote for Proposition 30 is the crucial one, as it has a better chance of passing.

Yes on 38, Increasing Income Tax Rates to Fund Education

Proposition 38 summary, official arguments, and text

1 comment:

  1. Keep the California dream alive and well. Vote No on Prop 30, 38, 32. Save California for our children.
    Decisions you make on Nov 6 determine California’s course for years. We are kidding ourselves by believing that education funding shortfalls disappear with Prop 30, Prop 38.
    Prop 30, Prop 38 levy significant taxes on each one of us. The wounds that Prop 30, 38 are to heal have been self inflicted largely by our elected Sacramento politicians who simply do not say no to any influential interest group be they, University of California (29% increase in salaries last 6 years), public employees, business, teachers, or other unions or lobbyists.
    And now Prop 30, 38 are used by Sacramento politicians and lobbyists to blackmail us.