Summary
California’s Proposition 30 would increase state taxes on personal income over $2 million by 1.75% for individuals and married couples. Prop. 30 would allocate the increased tax revenues as follows: (1) 45% for rebates and other incentives for zero-emission vehicle purchases and 35% for charging stations for zero-emission vehicles, with at least half of this funding directed to low-income households and communities; and (2) 20% for wildfire prevention and suppression programs, with priority given to hiring and training firefighters.
Fiscal Impact
The Legislative Analyst’s Office estimates that Prop. 30’s additional tax would raise between $3.5 billion and $5 billion annually which would be split across the zero-emission vehicle and wildfire prevention programs. Although LAO notes that “some taxpayers probably would take steps to reduce the amount of income taxes they owe,” it does not attempt to quantify any potential revenue losses.
Arguments in Favor
Proponents argue that the state must take more vigorous action to reduce air pollution and greenhouse gas emissions while countering wildfires which have become worse in recent years. Supporters say the funds from Proposition 30 would accelerate the transition to electric vehicles by making electric vehicles more affordable and increasing the number of charging stations, thereby making charging more convenient and encouraging more people to buy EVs. Politico reports that ride-sharing company Lyft, environmental groups, and “unions that would build electric infrastructure” are among those supporting Prop. 30.
“The initiative will expand access to electric vehicle chargers for every Californian, regardless of where they live or work. In the first year alone, over 500,000 apartments and houses will be equipped with EV chargers,” claims the Yes On 30 Clean Air Coalition.
In an effort to reduce wildfire risks, Proposition 30’s proceeds would also be used to clear dry vegetation and increase protective spaces around homes and businesses. To fight fires more effectively once they start, the measure would also fund additional personnel and equipment. Proponents say reducing the number and size of fires and fighting them more effectively would improve the state’s air quality.
Arguments Against
Opponents are concerned that Prop. 30 reduces the state legislature’s ability to allocate state resources and might take funding away from schools and other priorities.
“We already have some of the highest taxes in the country,” Jon Coupal, president of the Howard Jarvis Taxpayers Association, told the Mercury News. “A lot of the air pollution in Southern California could be eliminated by spending transportation dollars on freeway improvements to reduce traffic jams. If these proposals are really priorities, they should be paid for out of the existing general fund.”
The California Teachers Association and Gov. Gavin Newsom are among others who oppose the proposition. “California’s tax revenues are famously volatile, and this measure would make our state’s finances more unstable — all so that special interests can benefit,” said Gov. Gavin Newsom. “Californians should know that just this year our state committed $10 billion for electric vehicles and their infrastructure, part of a $54 billion nation-leading package to fight climate change and build a zero-emission future. Don’t be fooled. Prop. 30 is fiscally irresponsible and puts the profits of a single corporation ahead of the welfare of the entire state.”
Opponents also contend that by hastening the conversion to electric vehicles, Proposition 30 would increase demand for electricity without funding increased power generation capacity, thereby straining the state’s electrical grid, which is facing issues in September 2022. As a result, future heat waves are more likely to result in emergency conservation measures, which can include rolling blackouts as well as restrictions on air conditioner use and electric vehicle charging.
Discussion
Although it is possible to charge electric vehicles at home, EV owners often need to use public charging stations if they run low during the day, typically due to long-distance travel. Also, apartment dwellers may not be able to charge their vehicles at home.
California has almost 38,000 EV charging ports at over 14,000 public charging stations, more than any other state both in absolute and per capita terms. But a 2021 report from the California Energy Commission concluded that public charging infrastructure was not keeping up with the state’s growing need for these facilities.
Additional public funds have been earmarked to subsidize the addition of more charging stations. The 2021 Infrastructure Investment and Jobs Act included $7.5 billion for EV charging infrastructure, of which about $383 million is expected to be spent in California. The state government also plans to spend about $2 billion on its own funds with a goal of reaching 1.2 million charging stations statewide by 2030.
With respect to wildfires, the legislature committed an additional $1.2 billion to “wildfire and forest resilience” in its 2022-2023 budget over a two-year period. But much more could be spent to minimize fire risk. For example, the cost of undergrounding all above-ground power lines statewide has been estimated to be $243 billion. That said, not all above-ground power lines are close enough to forests to present a risk of wildfires, and Pacific Gas and Electric Company (PG&E) has begun the process of undergrounding 10,000 miles of high-risk lines at an expected cost of at least $15 billion to 20 billion of ratepayer revenues, reducing the need for state spending.
The fiscal impact of Proposition 30, if approved, would be heavily dependent on the relocation decisions of a small number of the state’s high-income taxpayers. Those affected by this measure—Californians with incomes of over $2 million annually, currently face a marginal state tax rate of 13.3%. This rate is higher than maximum rates in other states: Hawaii has the second highest marginal income rate of 11%. Some New York City taxpayers face a higher combined state and local income tax rate than their California counterparts.
According to 2019 statistics published by the state’s Franchise Tax Board, only 35,000 taxpayers reported adjusted gross incomes greater than $2 million. In that year, those taxpayers had a cumulative state tax liability of $27.3 billion or 33% of the statewide total in income taxes collected.
During the COVID-19 pandemic, outmigration from California increased as remote work became more common. Four of the states that are receiving significant numbers of departing Californians— Florida, Nevada, Tennessee, and Texas—do not have state income taxes. Historically, California has been able to retain most of its high-income residents due to its weather, extensive business opportunities, lifestyle, and unparalleled social networks, especially in the entertainment and technology industries. While some of these benefits remain intact, growing technology clusters in places like Austin and Miami are now in a stronger position to compete for high-income Californians.
As noted by the Legislative Analyst’s Office, it is impossible to predict how many high-income Californians will relocate if Proposition 30 passes. On the one hand, an extra expense of 1.75% on a certain portion of an individual’s income may be seen as a relatively minor cost that would not drive the behavior of high-income individuals or families. But, for some others, it could be the last straw, pushing some families who may have already been considering moving out of California to go ahead with their plans.
Outmigration of high-income taxpayers would not only cut into the state’s marginal income from the 1.75% tax increase those individuals would have paid, but it would also cause the state to lose the rest of the income taxes they were previously paying. Consider, for example, a married taxpayer filing jointly and reporting $5,000,000 of adjusted gross income net of deductions. In 2021, that taxpayer would have incurred a state tax liability of $582,739. Had the new Prop 30 tax been in place, he or she would have paid an additional $52,500 in state taxes toward vehicle charging infrastructure and wildfire protection. But if the taxpayer leaves, the state will not only lose this additional revenue from Prop. 30 but also the opportunity to collect the existing obligation which, in this case, is $500,000 for just one taxpayer.
If many high-income taxpayers leave, this loss of base income tax revenue could offset some or even most of the expected revenue gain from Prop. 30. Further, it has distributional effects within the state budget. While extra taxes collected from the marginal tax increase would go to Proposition 30 priorities, revenue losses from relocations out of state would impact the state’s general fund, which primarily funds K-12 education and Medi-Cal. It may be for this reason, that the California Teachers Association and California Gov. Gavin Newsom oppose Proposition 30.
If Proposition 30 passes and the state loses a significant amount of base tax revenue from outmigration, the state legislature could have to divert planned general fund spending from electrical vehicle infrastructure to other priorities. That would theoretically enable the state to maintain its education spending levels but would frustrate Prop. 30 proponents’ goal of increasing overall state support for electric vehicles.