Brown’s Tax Plan Could Yield Less Revenue Than Projected, LAO Says

The non-partisan Legislative Analyst's Office estimates that Gov. Jerry Brown's (D) proposed November tax initiative would fall short of expectations by $2.1 billion next year, Bloomberg reports (Nash/Marois, Bloomberg, 1/10).

LAO and the state Department of Finance sent a joint letter to Attorney General Kamala Harris (D) with separate forecasts on the tax measure as part of preparations of voter information (Yamamura, Sacramento Bee, 1/10).

Background

The governor's tax plan is a key component of his $92.6 billion spending proposal for the 2012-2013 fiscal year (York, Los Angeles Times, 1/9).

The tax proposal, which Brown aims to place before voters in November, aims to increase income taxes by:

• 1% for residents who earn more than $250,000 annually;
• 1.5% for residents who earn between $300,000 and $500,000; and
• 2% for residents who earn more than $500,000.

The proposal also would increase the state sales tax by half a cent.

The tax hikes would expire at the end of 2016 (California Healthline, 12/1/11).

Details of Tax Revenue Projections

As part of the governor's budget proposal that was released last week, the Department of Finance estimated that the tax measure would generate nearly $6.9 billion annually to help address the state's budget deficit.

LAO estimated that the tax plan would raise $4.8 billion in FY 2012-2013 and about $5.5 billion in subsequent years (Los Angeles Times, 1/9).

Jason Sisney, the chief forecaster at LAO, said that LAO and the finance department agree in general about how much sales tax revenue Brown's plan would generate. Sisney said the disagreement stems from revenue generated from increasing taxes on wealthy Californians because their incomes can vary from year to year (Sacramento Bee, 1/10).

In addition, Brown's budget plan assumes that tax rate reductions enacted by former President George W. Bush will expire at the end of 2012, while LAO's analysis assumes that those cuts will be extended by one year (Bloomberg, 1/10).

H.D. Palmer -- spokesperson for the Department of Finance -- said the state would issue revised revenue projections in May after accounting for April tax receipts.

Possibility of Additional Budget Cuts

Brown has said that if voters reject his tax measure, deeper state budget cuts could be triggered (Los Angeles Times, 1/9).

More cuts also could be needed if LAO's projections on the governor's tax plan are more accurate than Brown's (Adler, "KPBS News," KPBS, 1/9).

Editorial: Brown's Call for More Money "Is Spot-On"

A San Jose Mercury News editorial states that Brown's "assessment that California needs more money to meet its basic needs is spot-on" because "Brown is recommending another painful $4 billion to be cut from other state services by March" as part of his budget plan.

According to the editorial, these cuts include "$1.4 billion from welfare and child care services for the poor and $1 billion from Medi-Cal's health care programs -- reductions that would not be restored even if a tax measure passes" (San Jose Mercury News, 1/9).