Temporary California tax is set to expire — but Democrats want to make it permanent

California voters will decide in November whether to permanently lock in higher state income-tax rates for the state’s highest earners.

Proposition 3 would make permanent income tax rates that California voters approved in 2012 and that are currently scheduled to expire in 2031.

The measure applies to high-income Californians, with the income threshold currently set at $371,000 and adjusted annually for inflation.

The state estimates that making the tax permanent would preserve between $5 billion and $15 billion in annual income-tax revenue. 

Under the current system, California’s personal income-tax structure is progressive, with rates increasing as taxable income rises. The lower tax brackets would not change under Proposition 3.

The major question is what happens to the higher rates imposed on top earners once the existing tax is scheduled to sunset.

If Proposition 3 passes, those higher rates would remain in place permanently. If it fails, the tax increase would expire in 2031, according to the California Secretary of State’s official voter guide. 

For example, the current top marginal state income tax rate is 12.3%.

The tax rates affected by Prop. 3 are the higher rates that apply to income above specified thresholds for high earners, while the lower portions of a taxpayer’s income remain subject to the existing bracket structure.

Supporters say maintaining the additional revenue is important for schools and other public services.

“We’re looking at services being cut across the board – health care, resources for students and families,” California Teachers Association President David Goldberg told KCRA3.

“This will impact not just public education, but the way it’s funded; it will also impact the general fund, which includes all kinds of programs that Californians rely on for our day-to-day lives. It’ll be dramatic cuts.”

The measure directs its tax revenue toward public education.

The Secretary of State’s official summary says 89% of the money would go to K–12 schools and 11% to community colleges, while also increasing General Fund resources available for healthcare, reserves and other programs. 

Supporters characterize Prop. 3 as an extension of an existing tax rather than a new tax on people who are currently outside the affected income brackets.

Opponents argue the measure would permanently preserve higher tax rates at a time when California already collects substantial revenue from high-income taxpayers.

“Time and time again, people see that when asked to increase taxes, they have the question of how are you using the money we give you now?” Howard Jarvis Taxpayers Association President Jon Coupal said.

Coupal also argued that keeping the higher rates could have broader economic consequences.

“Proposition 3 is an extension of the existing tax rates, so its impact may not be as dramatic, but it still exists,” he said.

As Californians weigh Proposition 3, they will also encounter another major tax proposal on the November ballot: Proposition 40, which would impose a one-time 5% tax on certain taxpayers and trusts with more than $1 billion in covered assets.

Unlike Prop. 3, which deals with income and would extend an existing tax indefinitely, Prop. 40 targets accumulated wealth and would impose the levy only once.

The measure would direct 90% of its proceeds toward healthcare and the remaining 10% toward food assistance or education-related programs. 

The state’s fiscal analysis estimates Prop. 40 could produce tens of billions of dollars over several years, while also potentially reducing state income-tax collections from billionaires by hundreds of millions of dollars or more annually. 

The two tax measures have also produced different political alignments.

Xavier Becerra, who is running to succeed Gov. Gavin Newsom, has opposed Proposition 40 while supporting Proposition 3, putting him on different sides of the two tax proposals.

Both measures will go before voters on Nov. 3. 

Download The California Post App, follow us on social, and subscribe to our newsletters