A Look Into Proposition 30

By Ryan C. Fuhrmann | December 12, 2012 AAA

In addition to the hard-fought presidential elections in early November, individual states held votes on a number of bitterly-contested issues. In California, a measure named Proposition 30 was passed and though it was "billed as a tax hike to rescue the state's schools," it is designed to put the fiscally-embattled state's overall financial health on a better path. Below is an overview of Prop 30 and a discussion of how it is likely to help or hinder the state.

SEE: 3 Ways To Avoid The Dividend Tax Hike

What Is Prop 30?
California's own government-sponsored voter guide website claims that Prop 30's overriding goal is to provide "temporary taxes to fund education." It states that the measure is to tax earnings levels above $250,000 by as much as three percentage points for a period of seven years and also increase sales taxes by a quarter of a cent ($0.025) for a four-year period. It is expected to shore up state tax revenue by $6 billion annually through 2018-2019. It also puts the revenues available toward funding the overall state budget. Without its approval, California's education programs would have faced budget cuts in 2013.

Who Does It Effect Now That It's Been Approved?
The measure was highly contested but passed by an estimated voter tally of around 54%, leaving approximately 46% in opposition. Wealthier individuals will clearly see the biggest impact and additional tax payments of $7,500, assuming a 3% additional hit on $250,000 in annual income. The sales tax is based on consumption and affects any individuals or businesses purchasing goods or services in the state. This affects both California residents and non-residents who visit the state or utilize its products.

How Will the State of California Be Affected?
Californians have a unique opportunity to vote directly on issues that residents of other states are unable to decide on. The approval of Prop 30 represented the first tax increase approved in roughly two decades and could signal both state politicians and citizens have gotten more serious about shoring up state finances. Of course, California is already one of the more heavily-taxed states, and approval of the measure could end up resulting in good money following many decades of wasteful state spending and rising budget deficits.

Disadvantages and Advantages
Returning to the state voter guide that allowed constituents to detail the pros and cons of Prop 30, the party for the measure advocated taxing wealthy Californians as a means to stop an extended period of education cutbacks. The opposing party, Californians for Reforms and Jobs, not Taxes, criticized the ability for the additional taxes to go into the general budget and uncertainty over "where the money really goes."

SEE: 5 Ways To Fund A College Education

If used for its intended purpose, Prop 30 should have a positive impact on the quality of the state's education. Many areas in California have inadequate public school systems and cutbacks in recent years have been blamed for the disappointing education metrics. Of course, the fact that general state budgets will receive the funds leaves the potential for them to be used for other purposes than those agreed to by voters. There is also uncertainty over how benefits will be measured and if the funds will truly help improve the state's educational reputation.

The Bottom Line
According to one source, urban areas, including those around coastal California, Los Angeles and San Francisco, voted for the measure. Rural areas, many of which are located inland were believed to be opposed to Prop 30. Regardless of the outstanding debate and disagreement, Prop 30 is in the process of being implemented and will affect wealthier Californians for the next seven years.

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