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Prop 55: Tax Extension for Education

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Sheppard Mullin

Sponsored by Sheppard Mullin, a full service, global law firm with 750 attorneys.  The firm handles corporate and technology matters, high stakes litigation and complex financial transactions.  Visit www.sheppardmullin.com

Updated at 1:30 PM Nov. 9, 2016

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Prop 55 has passed by a margin of 62.1% yes and 37.9% no. The personal income tax on wealthy Californians will continue until 2030.

What would Prop 55 do?

Prop 55 would extend a personal income tax that currently exists on higher income households. Right now the tax is set to expire at the end of 2017. If Prop 55 passes it would continue until 2030.

The revenues from the tax would go to support K-12 education. A smaller amount would go to community colleges.

Who would have to pay the tax?

The tax applies to the top 3% of California taxpayers. Specifically:

  • Individual filers earning $250,000 or more.
  • Joint filers earning $500,000 or more.
  • Heads of households earning $340,000 or more

How much money would the tax raise and how would it be spent?

  • The tax extension would raise between $4 and $9 billion dollars annually. 
  • The lion’s share -- 89% -- would go towards K-through-12 education.
  • A smaller -- 11% -- amount to community colleges.  
  • An even smaller amount would go to health care for low-income people, but it depends on budget variables.

Tax revenues must be used for the classroom, not administration. However, the measure gives local school boards discretion over the use of the money as long as it is discussed in open meetings and the spending is subject to audits.  
Who supports Prop 55 and what are their arguments in favor of it?

More than 60 organizations support Prop 55. Most of them are associated with education, such as school boards, school districts, teacher unions, PTAs, associations of colleges, and health care organizations.

They argue:

  • Schools are starting to recover from the drastic cuts made during the recession. Prop 55 would continue this recovery.
  • It would prevent as much as $4 billion in cuts to schools including arts and music programs.
  • It helps to hire some of the 22,000 teachers that the state needs in the next year alone.
  • It provides strict accountability and transparency.
  • For community colleges it would prevent tuition increases and help make classes for available to more than two million community college students
  • Prop 55 would not create a new tax. It would only extend an existing one.
  • It would affect wealthy taxpayers only.
  • It would reduce the sales tax on all Californians because an existing sales tax (.25%) would be allowed to expire.

Who opposes Prop 55 and what are their arguments against it?

The main opponents of Prop 55 are the Howard Jarvis Taxpayers Association and other taxpayer groups. The California Republican Party and the California Chamber of Commerce are also against it.

They argue:

  • This tax was supposed to be temporary. It was approved in 2012 on the condition that it will expire at the end of 2017.
  • Governor Brown and education advocates who pushed for the tax in 2012 are breaking their promise to taxpayers.
  • California has a balanced budget and a $2.7 billion surplus. We don’t need to continue taxing Californians.
  • Education spending has soared by nearly $25 billion since 2012. We have enough money to fund education and hire more teachers if politicians would only cut waste and prioritize spending.
  • A 12 year extension is a long extension.
  • Prop 55 is just a way to grow the government with a huge state tax increase.

How much money is going into the Prop 55?

To sum up:

A “yes” vote means the personal income tax continues until 2030.

A “no” vote means the personal income tax will expire at the end of 2017.  

Click here for a cheat sheet on all the California ballot propositions.

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