The State Worker

Chronicling civil-service life for California state workers

June 12, 2009
LAO: McCauley pension tax proposition may be illegal

The lastest pension proposition by ballot initiative baron Paul McCauley could run afoul of the law, according to the Legislative Analyst's Office.

McCauley, a Southern California CPA, has written several unsuccessful ballot initiatives targeting the income and revenue of government retirees and large corporations.

The latest McCauley ballot measure, which has been given the Secretary of State's OK for signature collection to qualify for a statewide vote, would create new taxes on California residents who get more than $40,000 annually from pension distributions, Social Security, or the cash value of health care benefits.

It could also put a one-time tax on folks living outside California whose pension benefits exceed $50,000 in a year and who earned income in the state before they retired.

But just because McCauley has authorization to collect signatures to qualify the measure for the ballot doesn't mean it's legal.

Here's what the LAO says:

Potential Legal Problems of the Excise Tax. The measure raises legal issues that could result in the excise tax being invalidated under federal law. According to FTB, states are prohibited from imposing an income tax on the retirement income (from an in-state employer) of a nonresident. While the proposed excise tax is not technically a tax on current income, the outcome is similar (especially since this measure allows the excise tax to be paid over time). As a result, the excise tax may not survive a legal challenge. In that case, the annual revenue estimate would drop by $1 billion to $3 billion.

Read more of the LAO's analysis by clicking this link. You can read about more about this latest McCauley measure and his earlier ones by clicking here.

We've attempted to contact McCauley, who corresponds only via e-mail, but he hasn't responded.

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About The State Worker

Jon Ortiz The Author

Jon Ortiz launched The State Worker blog and a companion column in 2008 to cover state government from the perspective of California government employees. Every day he filters the news through a single question: "What does this mean for state workers?" Join Ortiz for updates and debate on state pay, benefits, pensions, contracts and jobs. Contact him at (916) 321-1043 and at jortiz@sacbee.com.

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