Dan Walters

Extending California income tax to local governments a minefield

The Los Angeles County Board of Supervisors voted recently to seek permission from the Legislature to impose what its members call a “millionaires’ tax” – a county version of the state’s surtax, supposedly to finance services to the county’s many homeless residents.
The Los Angeles County Board of Supervisors voted recently to seek permission from the Legislature to impose what its members call a “millionaires’ tax” – a county version of the state’s surtax, supposedly to finance services to the county’s many homeless residents. Los Angeles Times

As California’s economy underwent a massive evolution over the last few decades, one well-documented effect was that its income disparities became much wider.

The decline of the industrial economy and its well-paying blue-collar jobs and the rise of a post-industrial economy rooted in technology and services have rewarded those at the top handsomely, but left millions of Californians behind – a syndrome most pronounced in technology-heavy regions such as the San Francisco Bay Area.

State government has been, in effect, a partner in the evolution, because its progressive income tax has reaped many billions of dollars in taxes on those in the top tiers.

That’s been particularly true in this decade, thanks to a temporary surtax that voters imposed on those in the highest income brackets in 2012. The 1-percenters now provide a third of the state’s general fund revenues.

Unions and others with financial stakes in the state budget will press voters in November to extend the surtax for an additional 12 years, and polling indicates it’s likely to happen.

There is, however, a downside to the state’s increasing reliance on a few hundred thousand taxpayers because their incomes tend to vary widely, depending on how the stock market and other investment venues are doing. It’s created a high level of volatility and thus a feast-or-famine syndrome in state budgeting.

California, however, is likely to continue to count on 1-percenters to support schools, prisons, health care and other state activities. As Gov. Jerry Brown says, from a political standpoint, “the best tax is one that 99 percent of the voters don’t pay.”

It’s not surprising, therefore, that those in other levels of California government are somewhat envious of the state’s income tax monopoly.

The Los Angeles County Board of Supervisors voted recently to seek permission from the Legislature to impose what its members call a “millionaires’ tax” – a county version of the state’s surtax, supposedly to finance services to the county’s many homeless residents.

Like other tax increase proposals, it’s pledged to pay for something that’s popular with constituents, but in reality, it would free up money for other purposes that may not be so popular.

The proposal is based on polling indicating that 76 percent of those surveyed would support such a tax if submitted to voters – thus validating Brown’s observation.

Los Angeles officials may seek the Legislature’s blessing in one of the so-called “trailer bills” that are rushed into law with the state budget.

However, this is a serious policy issue that merits much more than the cursory examination given to trailer bills.

Were Los Angeles to succeed in the Capitol and at the polls, other cities and counties would almost surely follow, and the state could wind up with a dizzying array of income tax rates that would be almost impossible to administer.

Californians who live in one county but work in another – or in many others, such as truck drivers – could find themselves swamped in paperwork and enmeshed in legal battles between jurisdictions over their tax dollars, just as California jousts with other states.

Local tax-the-rich schemes are probably ill-advised for many reasons. But if politicians want to move that way, they should take a long, hard look at practical effects and not just do something slap-dash in the dark of night for one revenue-hungry county.

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