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California Governor: Increase Tax for $15.7 Billion Gap


California Governor Jerry Brown called for new spending cuts and higher taxes to offset the unexpected $15.7 billion budget gap, originally forecast at $9 billion. 

Brown's proposal includes state spending cuts on health care and the prison system, and calls for a 38-hour workweek for employees, spread over four days.

In addition, his new proposal counts on an increase in both income and sales taxes to help balance the books. In order for the budget to work, the state would have to pass initiative 12-0009, which temporarily increases California sales tax from 7.25% to 7.5% percent for four years.

The plan includes a temporary, seven-year income tax increase, also proposed in initiative 12-0009. The initiative reads:

(A)(i) For that portion of taxable income that is over three hundred forty thousand dollars ($340,000) but not over four hundred eight thousand dollars ($408,000) the tax rate is 10.3 percent of the excess over three hundred forty thousand dollars ($340,000).

(ii) For that portion of taxable income that is over four hundred eight thousand dollars ($408,000) but not over six hundred eighty thousand dollars ($680,000) the tax rate is 11.3 percent of the excess over four hundred eight thousand dollars ($408,000).

(iii) For that portion of taxable income that is over six hundred eighty thousand dollars ($680,000), the tax rate is 12.3 percent of the excess over six hundred eighty thousand dollars ($680,000).

Said Brown in an NBC news broadcast,* "This is a type of day of reckoning, and you've got to take the medicine."

According to the Governor, the miscalculation in the budget gap was due to overestimating state revenue, increases in educational spending, and state cuts blocked by federal legislators.

If the Governor's plan is approved, it will go into effect July 1.

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Will Frei
Avalara Author Will Frei
Will Frei covers sales tax news including best practices, legislation and sales tax technology. He is the Social Media Manager at Avalara.