Friday, February 3, 2023

Californians Can Thank ’70s Tax Revolt for Rebate of Budget Surplus $s

Most Californians will enjoy a one-time tax rebate or payment, courtesy of a massive state revenue windfall and a 42-year-old remnant of the Tax Revolt of the 1970s.

As part of his $100 billion “California Comeback Plan,” Governor Newsom announced his intent to deliver “stimulus” checks of at least $600 to two-thirds of state residents, plus $500 to families with kids. 

The new cash infusion of $8 billion comes on top of $4 billion previously distributed to Californians with low and moderate incomes. The new payments will go to taxpayers who make up to $75,000 a year and who did not receive a first payment.

It’s hard to imagine that, faced with such a large revenue windfall, any elected official wouldn’t return money to taxpayers. In this case, about one out of every six surplus dollars will wind up directly in the hands of state residents.

But there’s also little doubt that the 1979 citizens’ initiative, which requires return of surplus revenues to taxpayers and to schools, played a role in the amount and timing.

Indeed, whether the Governor’s rebate scheme lives up to the spirit of the initiative may come under scrutiny. The Constitution requires half of surplus revenues to “be returned by a revision of tax rates or fee schedules,” which suggests a direct tax reduction for all taxpayers, rather than targeting grant payments to a subset of California residents.

Indeed, Californians with incomes below $75,000 pay very little in income taxes. Whether the Legislature or individual taxpayers challenge the Governor’s proposal remains to be seen.

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