Will California Delay Its Tax Freedom Day In 2015?

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April: the month that bureaucrats laud and taxpayers lament. In California - the second worst state to be a taxpayer - April 15th is more burdensome than most. But while Sacramento is abuzz this time of year - policy bills need to be out of committee by May 1st (for fiscal bills) or May 15th (for non-fiscal bills) - major tax policy fights are currently, largely, absent from the Golden Dome.

While some may argue that Governor Brown is holding his progressive Democratic colleagues at bay, there are three structural reasons for this unusually tax-less legislative session.

1) Tax increases require a 2/3rd majority in the State Legislature meaning Democrats need, following the 2014 elections, some Republicans to pass such measures. While Republicans' moderate and conservative factions disagree on some issues, tax increases strongly unite them.

2) As of March 31st, the Legislative Analyst's Office estimates that personal and corporate income tax collections exceed Department of Finance fiscal year projections by $1.1 billion. Having more money than expected eliminates a major tax increase selling feature.

3) Ballot proposition signature requirements are tied to gubernatorial election turnout. 2014's race featured record low turnout; as such, signature thresholds are just a quarter of what they were after the 2010 election - only 365,880 signatures for non-constitutional amendments and just 585,407 signatures for constitutional amendments. Low signature requirements makes qualifying a ballot initiative significantly less expensive for individuals and groups, making the ballot a more enticing option than dealing with the State Legislature and the Governor's Office.

While no major tax initiative has been filed with the Attorney General's office yet, it would be very surprising if none surfaced. For instance, in 2012, Californians voted on four tax-related propositions. Here are some top contenders that are likely to appear in 2016.

Proposition 30: Proposition 30 raised the state sales tax and increased the state personal income taxes for those making more than $250,000. Voters supported the measure largely because of the state's budget deficit and its impact on K-12 and higher education spending. But its components will start to expire next year and not surprisingly, some in Sacramento are starting to call for extensions of all or some of Proposition 30's tax hikes. A few are even going as far as to suggest making Proposition 30's features permanent. In a January 2015 PPIC survey, 52% of likely voters say they would favor extending Proposition 30. Meanwhile, in an October 2014 Golden State Poll, 47% of voters who planned to vote in the 2014 gubernatorial election said they would like to extend Proposition 30 or make it permanent. Neither, however, is a substantially strong starting point for a ballot proposition.

Proposition 13: Passed in 1978 with 63% of the vote, Proposition 13 reduced property tax rates for California residential and commercial property. In addition, it put strict parameters around future property tax increases and instituted California's 2/3rd vote requirement for state tax increases. This ballot proposition is often called California's "third rail" since even 37 years later, 62% of likely voters still consider Proposition 13 a good thing for California.

Recently, however, there has been a rise in chatter to treat business property differently - known as a split roll - by taxing business property at its market value - as opposed to its assessed value, which is recalculated annually by up to 2% and readjusted to market value upon sale of the property. A January 2015 PPIC survey suggests that 54% of likely voters would support this sort of change, but when asked specifically about a Proposition 13 Split Roll measure, the October 2014 Golden State Poll shows support at just 40%. It still appears that voters don't want politicians tinkering with Prop 13.

Oil Severance Tax: While environmentalists hold significant influence in Sacramento, California is the third largest producer of oil in the United States. In the 2013-2014 session, then-State Senator Noreen Evans introduced an oil severance tax - a tax imposed on the extraction of non-renewable natural resources - but like previous attempts by other legislators, Evans' SB 241 didn't gain traction.

Critics of the oil and gas industry note that California is the only major oil producing state that doesn't have a severance tax. Industry advocates counter that California considers the oil or natural gas as property, so it doesn't go untaxed. Environmentalists, including billionaire activist Tom Steyer, are exploring putting an oil severance tax on the ballot, but if history is any judge, they face an uphill climb. Voters rejected oil severance tax measures in 1980, 1992, and 2006.

According to the Tax Foundation, California's May 3rd Tax Freedom Day - the date on which residents have collectively worked long enough to pay all federal, state, and local tax obligations - is the 4th latest in the nation. And the 2015 date is 4 days later than 2014's Tax Freedom Day. The 2015 legislative session, however, may just be the calm before the tax storm at which point Californians can decide for themselves whether they want their Tax Freedom Day to extend further into the year or not.

 

Carson Bruno is the assistant dean for admission and program relations at the Pepperdine School of Public Policy. Follow him on Twitter @CarsonJFBruno.

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