State lawmakers and the governor approved more than $4.4 billion a year in higher taxes and fees this year, even as the state was experiencing a revenue windfall from existing taxes, according to the new Tax and Fee Report published by the California Tax Foundation.
The increases enacted this year include a renewal of California’s Managed Care Organization tax, two cellphone surcharges and a renewal of a surcharge on electricity ratepayers.
Many tax and fee proposals are still pending in the Capitol, and could be pursued when the Legislature returns in January – unless the sponsors decide that enough is enough.
The state has a $7 billion operating surplus and $26 billion in reserve accounts, according to a new projection from the nonpartisan legislative analyst. The analyst noted that revenue from California’s three largest taxes – the personal income tax, sales tax and corporation tax – increased an impressive 30 percent from 2012-13 to 2018-19 (in 2018-19 dollars).
Property tax revenue also is increasing throughout the state. The State Board of Equalization just reported that the taxable value of property in California increased 6 percent this year, pyramiding on top of similar increases during each of the past four years. This translates to billions of dollars in additional property tax revenue for local governments and public schools.
The property tax revenue is increasing even as individual property owners are protected from unmanageable increases. Under Proposition 13, property tax increases are capped at 2 percent per year, unless there is a change of ownership or new construction (including stadiums and office buildings that generate large amounts of property tax revenue, with no negative tax impact on homeowners).
Thanks to this influx of tax dollars, the state constitution’s minimum guarantee for education funding in 2020-21 will be $84.3 billion, an increase of $3.4 billion (4.2 percent) over the current level, according to the legislative analyst. With school spending already at a historic high, this is very good news indeed for education.
The government’s tax windfall illustrates the well-known principle that the best source of new revenue for schools and other government programs is a thriving economy. When income goes up, income tax revenue goes up. When sales increase, sale tax revenue increases. When businesses put more workers on the payroll, payroll tax revenue increases.
Given the revenue surplus, the $3.4 billion increase in school funding and the big state reserves, is there any possible scenario in which tax and fee increases would make sense?
Lawmakers will provide their answer to this question in a matter of months. The Tax and Fee Report reveals that they proposed a total of $20.4 billion worth of annual taxes and fees this year, and 19 proposed tax and fee increases remain in the hopper awaiting possible action in 2020. Additional taxes and fees might be unveiled in January and February, the peak months for introducing legislation to be considered in the new year.
Taxpayers also will have a chance to directly answer the question of whether tax increases make sense. A large property tax increase initiative already has qualified for the ballot, and an income tax measure has been filed, so voters will decide in November 2020 whether they want to keep filling the state reserves or find their own uses for their money.