The upcoming November ballot in California could redefine the state's tax landscape. That’s due to an initiative backed by business groups designed to protect Californians from what proponents describe as an unsustainable state tax regime.
If approved, the Taxpayer Protection and Government Accountability Act could have significant implications for Californians. It would limit future tax increases at state and local levels to curb what proponents see as excessive taxation without sufficient oversight.
As stated on its promotional website, the measure's primary rationale is that "California cannot sustainably bear the burden of ever-increasing taxes and fees without adequate accountability or transparency."
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Opponents, like California Gov. Gavin Newsom, fear that the measure requiring voter approval of tax increases could negatively impact vital public services and infrastructure funding and water down state legislative power to tax and spend.
Here’s more of what you need to know.
California tax increases
The Taxpayer Protection and Government Accountability Act, championed by a group sponsored by California homeowners, taxpayers, and business organizations, would require voter approval for any new California taxes or tax increases. Supporters point to the state's fluctuating budget and instances of fiscal mismanagement as reasons why the measure, mandating a two-thirds vote to increase or enact new California taxes, is needed.
“California is becoming too expensive for working families and family businesses. We need to give Californians the final decision on raising their taxes and better accountability for how state and local governments spend their money,” states Robert Rivinius of the Family Business Association of California.
However, the tax measure has its critics. Opponents, including officials from state and local governments and labor unions, have expressed concerns about the potential negative impact on public services, program funding, and infrastructure maintenance. Additionally, Gov. Newsom and legislative leaders have asked the California Supreme Court to remove the initiative from the state ballot.
- A legal basis is that the provision is essentially a revision to the state's constitution that requires legislative approval rather than an amendment that could come through a popular vote.
- Several organizations, including the ACLU and the California Farm Bureau Federation, and former California Gov. Jerry Brown have filed briefs supporting the removal, arguing that the measure would have an unprecedented impact on the state’s power to tax and spend.
While some in California advocate for higher taxes in exchange for enhanced government services, data show most Californians are concerned about the state’s fiscal issues. California gas prices are among the highest in the United States. The Golden State is also known for high sales and income tax rates. Housing costs and availability of affordable housing in California continue to be significant concerns.
California exit tax
This taxpayer protection initiative controversy comes as other California taxes have made news.
- As Kiplinger reported, there are questions about whether the state’s new $20 minimum wage for food workers is a way to raise taxes.
- California recently removed the wage cap on its 1.1% employee payroll tax for State Disability Insurance (SDI). So, the percentage of wages paid to residents on family leave or out of work due to a disability will increase. While the payroll tax is not new, it was previously imposed only on wages up to $145,600. Starting January 1, 2024, those earning more than $145,600 also pay this tax.
- A proposed wealth tax that would have imposed an additional 1.5% on California residents' net worth exceeding $1 billion failed to advance. That proposal included an exit tax that would have applied to some wealthy taxpayers who left California.
Meanwhile, data show taxpayers are fleeing high-tax states, including California, for lower-tax states and states with no income tax, like Florida and Texas. However, California residency and income-sourcing rules are an issue for some. If you are leaving the state, evaluate whether you are considered a resident of California and, for example, whether you have real estate or income that can subject you to California tax, despite your move.
Tax in California: Bottom line
As the November election approaches, Californians could face pivotal decisions that shape the state's fiscal policies for years. So stay tuned. The last time that a tax measure of this magnitude came before California voters was more than 40 years ago when Proposition 13 was on the ballot. (Proposition 13 restricts property tax increases in the state.)
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