The State of California is in economic disarray. A conference committee on the state budget produced a spending plan that calls for an $8.2 billion tax increase, primarily on business and high income earners. It adds approximately $4 billion more in spending than the "Governator" recommended. Here are the highlights of the plan:
1. New 10% and 11% Personal Income Tax Brackets. This increases the maximum personal income tax in California to 12%, when the 1% mental health tax rate is factored into the tax structure. The 10% rate will begin for income over $160,500 (single) and $321,000 (joint). The 11% rate starts for income over $321,000 (single) and $642,000 (joint). This is projected to increase tax revenue by $5.6 billion.
2. Corporate Tax Rate Increase. The state tax rate would be increased from 8.84% to 9.3%. Revenue gain: $470 million.
3. Suspending the Indexing of Personal Income Tax. This is an attempt by the legislature to overturn Proposition 7, adopted in 1982. Revenue gain: $815 million.
4. Three-Year Suspension of Net Operating Losses. The ability of businesses to carry forward net operating losses would be suspended for three years (so they say). Revenue gain: $1.1 billion.
