Steinberg floats income tax hike, sales tax reduction
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State Senate President Pro Tem Darrell Steinberg (D-Sacramento), in an interview with Times columnist George Skelton, suggested a new ‘pathway’ to a state budget fix: lower the state sales tax and hike car and income taxes.
Steinberg argues that the federal government will actually wind up picking up the tab for most of those tax increases.
As Skelton explains:
Here’s his thinking: Increase state income taxes for everyone -- except less so for the most affluent -- and also raise the vehicle license fee (or car tax). Both the income tax and the vehicle fee are deductible when paying the federal income tax. So, depending on a person’s federal tax bracket, up to 35% of the increase in state levies would be reimbursed by the feds. Then lower the state sales tax. ‘Bottom line,’ Steinberg says, ‘is that the tax cut and the deductible would be more than the tax increase. And the federal government would pay for the deductible.’
Steinberg told Skelton that the idea was brainchild of Senate GOP leader Dennis Hollingsworth (R-Murrieta). But Hollingsworth said nope.
‘It was intriguing,’ Hollingsworth told Skelton. ‘We looked at it with some interest. But once we ran the numbers, there was no way to accomplish what the Democrats wanted without a massive tax increase. Their assumptions are faulty.’
Jean Ross, director of the California Budget Project, which advocates for low-income residents, took aim at the rumored proposal on her blog. She said the problem with the plan is that lower-income Californians are less likely to itemize their federal taxes, which means they wouldn’t benefit from the switch.
Wrote Ross: ‘Relatively few low- to middle-income taxpayers itemize, while virtually all high-income taxpayers itemize their deductions. Yet, the proposal under consideration appears to be structured to disproportionately raise taxes at the bottom of the income distribution.’
According to Skelton’s column, the plan would be to increase the income tax rate by 1 percentage point, except for the top bracket. The sales tax would be dropped by 1.5 cents on the dollar. The tax plan would raise $1.8 billion.
-- Shane Goldmacher in Sacramento
twitter.com/ShaneGoldmacher