When Governor Jerry Brown campaigned for Proposition 30 last year, he argued that the temporary tax was needed for only a few years until the economy bounced back. Perhaps too early to celebrate, but the signs of a reviving economy are popping up.
Does that mean the Prop 30 tax will expire on schedule? I wouldn’t bet on it.
Last week’s report that California’s 8.6% unemployment rate is the lowest in five years is certainly welcome news. This week we learned that California is leading the nation in home price growth. That could lead to a boost in property tax revenue.
And with the money coming into the state treasury exceeding the governor’s budget projections by hundreds of millions of dollars so far, the governor must feel like the guy who watched sevens pop up across all the reels in a casino slot machine.
Before anyone puts on party hats, a fair question is: Will the economic good news be sustainable? The new revenue could be a result of the desire of high-end taxpayers to protect themselves against expected tax increases on the federal side by taking gains last year thus being hit by the retroactive nature of Prop 30.
California’s unemployment gains still leaves the state with the sixth highest unemployment rate in the country, a full point above the national average.
If California’s economy continues to grow, it may make up the $4-5 billion Prop 30 is supposed to bring in every year, a little less than 9-percent of all the income tax collected, the largest revenue source for the state budget.
Even so, when it is time for the Prop 30 tax to end as per the contract promised California voters when they approved the measure, will those seeking more revenue for government services or to retire debt, or to cover public sector health care and pension costs be willing to let the billions of tax revenue disappear without a fight?
I think every reader knows the answer to that question.
Given a good economy, how hard will the governor fight to make sure the taxes are temporary when he may be nearing the end of his second term? And if Brown chooses not to run for re-election, a new governor made no promise to allow the temporary taxes to fade away.
Despite the recent uplifting economic news, the long-term status of Prop 30 tax revenues is very much uncertain.