Desperate to plug budget holes for the next five years, Gov. Jerry Brown will ask voters to raise $7 billion annually by taxing the rich and hiking the sales tax by half a cent.
The Democratic governor crafted his November 2012 initiative with legislative leaders and major labor unions behind closed doors, relying on polls showing voters may be willing to tax the wealthy and pay more for schools.
The state faces a $12.8 billion deficit over the next 19 months after relying on optimistic projections and onetime budget patches, according to the state Legislative Analyst's Office. While Brown's proposal would not eliminate the entire gap, Democratic leaders believe $7 billion is about the most that voters will stomach.
The governor refused to discuss his tax plan Thursday after appearing at a Capitol hearing on his public pension rollback. But he suggested his pension changes could persuade voters to approve taxes next year.
Brown told lawmakers that "without pension reform I don't think we'll have the credibility to ask the people to do other things that are very much needed and that you'll want."
The governor is going straight to the voters with a signature-gathering drive after GOP lawmakers rejected his tax plan this year. Senate President Pro Tem Darrell Steinberg said he has little hope for a bipartisan tax deal in 2012.
Brown's proposal joins a crowded field of tax ideas, some backed by financiers with enough cash to gather signatures without politicians, unions or corporations.
Democratic leaders are counting on the power of the Governor's Office and labor groups such as the California Teachers Association to discourage rivals from qualifying their measures. Conventional wisdom is that if tax initiatives flood the ballot, voters will thumb their noses.
"I think all of these other measures become the enemy of what Brown is doing," said Rob Stutzman, a GOP strategist who helped former Gov. Arnold Schwarzenegger develop ballot initiative packages. "They're larding the ballot with taxes. Voters won't be able to tell the difference and will vote against them all."
Brown said he will publicly release his proposal today.
Under the governor's proposal, California would impose a half-cent sales tax increase starting in 2013 and an income tax hike on high-income earners retroactive to January 2012. Both would expire at the end of 2016.
The upper-income tax hike would start with a one-percentage-point increase at $250,000 for individuals and $500,000 for joint filers. A separate increase would charge 1.5 percentage points on income between $300,000 and $500,000; a third bracket would impose two percentage points on income above $500,000 for individuals. (Amounts are double for joint filers.)
The income tax change generally affects the top 1 percent of taxpaying households, a favorite target of Occupy protesters in recent months. In 2009, according to the Franchise Tax Board, the 1 percent threshold of tax filers started at $400,635.
"We've done quite enough on the cuts side," Steinberg said. "I can't say there won't be more, but they certainly ought to be a last resort. Instead of spending months trying to negotiate with legislative Republicans, let's take our case straight to the people most affected by the cuts."
California Republican Party Chairman Tom Del Beccaro said in a statement that "attempting to raise taxes at this moment is like throwing a drowning man an anchor and telling him to swim harder."
Brown initially wanted support from business and labor in hopes of taking a united front to voters.
But major business groups spurned the upper-income tax hike, suggesting it would hurt owners of firms who do not file as corporations, sources said. California Chamber of Commerce President Allan Zaremberg issued a brief statement saying he had yet to review the governor's plan.
Steinberg suggested that Democrats are now looking for targeted support from business groups such as health care professionals who have been fighting Medi-Cal cuts.
Sources said new tax money would flow directly to school districts, intended as a way to convince voters who say they would approve higher taxes for education. But the tax infusion would not boost school funding by the full $7 billion because it would free up other general fund dollars for social services, universities and corrections.
In the same ballot initiative, the governor will ask voters to lock in a temporary sales and vehicle tax shift that pays local governments for housing inmates and other state responsibilities.
California Teachers Association President Dean E. Vogel would not commit Thursday to Brown's measure before his state council formally endorses a tax plan.
"We're going to make a very strong effort to help in every way we can to get (a tax measure) passed," Vogel said. "It's premature to say how much money we're going to spend, but I'm sure we will devote considerable resources to it."