California Federation of Teachers Millionaire Tax Initiative

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1 Jesse Arreguín Councilmember, District 4 CONSENT CALENDAR March 20, 2012 To: From: Subject: Honorable Mayor and Members of the City Council Councilmember Jesse Arreguín California Federation of Teachers Millionaire Tax Initiative RECOMMENDATION: Adopt a Resolution supporting the California Federation of Teachers (CFT) Millionaires Tax Initiative for November s ballot. BACKGROUND: What is the Millionaires Tax of 2012? The Millionaires Tax of 2012 is a ballot initiative proposal for the November 2012 election that asks the richest Californians to pay their fair share to help fund public education and vital public services. The proposed initiative has been approved for signature gathering -- it needs to get 504,760 signatures by July 2 to make it onto the November 2012 ballot. What does it do? The Millionaires Tax of 2012 will ask wealthy Californians who earn $1 million or more to pay an extra 3% in state income tax. Those who earn $2 million or more are asked to pay an extra 5% in state income tax. The funds raised (an estimated $6-$9.5 billion per year) will begin to reverse the decline of California. They will be allocated as follows: 60% to education, o 36% to K-12, o 8% to community colleges, o 8% to the California State University system, o 8% to the University of California system, 25% to services for children, seniors, and people who are disabled, 10% to public safety, including firefighters, law enforcement, and first responders, and 5% on repairs to roads and bridges. Why do we need it? The current recession, coupled with many years of an inequitable tax structure with middle and low income taxpayers shouldering much of the burden, the state of 2180 Milvia Street, 5 th Floor, Berkeley, CA Tel: (510) TDD: (510) Fax: (510) jarreguin@cityofberkeley.info

2 California now suffers an annual budget deficit of around $10 billion to $14 billion dollars. Public education, public health, public safety, and road and bridge repair, have all been slashed ($20 billion over the last three years), with a disastrous impact upon the state s population. The Millionaires Tax of 2012 will help restore some of the funding that has been cut over the past few years. With the Millionaires Tax of 2012, no one but people making over 1 million dollars would pay a penny more in taxes. The top 1% of income earners has doubled its share of total state income over the past twenty years (from 12% to nearly 25%), while income growth for the rest of the population has stagnated. Meanwhile, the top tier tax rates (state and federal) are lower than they were previously. Twenty years ago the highest tax rate in California was 11% of income; today it is 10.3%. When Congress extended President Bush s federal tax cuts for top income earners in 2010, the top one percent in California received a windfall of $9-$14 billion per year nearly equal to the entire state budget deficit. The California millionaires that would be affected by this tax can afford to invest more in their state. Will the Millionaires Tax drive out small business owners, investors and other top earners? No. This flight of the wealthy argument was debated in New Jersey recently, a state which is considering taxing its top earners again after raising their rates significantly in The debate was fueled in part by a recent study by Stanford sociologist Cristobal Young, who looked at New Jersey s taxation experiment and found that the increase in rates didn t cause an out-migration of millionaires. The study examines the migration response to New Jersey s tax, which raised its income tax rate on top earners by 2.6 percentage points to 8.97 percent, one of the highest tax rates in the country. Drawing on unique state tax micro-data, Professor Young, along with co-investigator Charles Varner of Princeton University, estimated the migration response of millionaires to the rate increase. Their results showed that overall, top earners didn t move. Only one relatively small subset of the millionaire population those who are retired and living on investments rather than employment showed a small migration response. A pdf of the study can be accessed at: More information on the Millionaires Tax Campaign can be found at: FINANCIAL IMPLICATIONS: Unknown. CONTACT PERSON: Jesse Arreguín, Councilmember, District Attachments: 1. Resolution 2. Millionaires Tax Initiative

3 RESOLUTION NO. SUPPORTING THE CALIFORNIA FEDERATION OF TEACHERS MILLIONAIRES TAX FOR THE NOVEMBER 2012 BALLOT WHEREAS, the state of California has experienced an annual budget deficit of approximately $10 billion to $14 billion dollars in recent years due to the current economic recession; and WHEREAS, public education, public health, public safety, and road and bridge repair, have all been continually cut ($20 billion over the last three years) with devastating and long lasting consequences; and WHEREAS, budget cuts have led to larger classroom sizes, teacher lay-offs, school bus cuts and school closures; and WHEREAS, despite California having the world s 8 th largest economy, it has some of the highest numbers of students per teacher, ranks 31st in per pupil spending, and ranks almost last in student achievement; and WHEREAS, students in California s public universities and colleges are facing an average tuition increase of 21 percent -the highest in the nation- the latest in years of hikes; and WHEREAS, income inequality in the United States is now greater than it has been since the 1920s with over 34% of the nation s wealth belonging to the top 1%; and WHEREAS, the widening gap between the wealthy and everyone else in the United States may be hindering a broader economic recovery, according to the International Monetary Fund; and WHEREAS, continual, drastic budget cuts further undercut economic recovery and the most vulnerable and needy in our state continue to suffer decreased services; and WHEREAS, the California Federation of Teachers have proposed a Millionaire Tax Initiative for the November 2012 ballot that will generate much needed revenue by increasing the state income tax on those earning over 1 million dollars. NOW, THEREFORE BE IT RESOLVED by the Council of the City of Berkeley that it supports the California Federation of Teachers Millionaires Tax for the November 2012 ballot to ensure that the richest Californians pay their fair share to help fund public education and vital public services.

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