SACRAMENTO (AP) — Rising income inequality has led to slowing tax revenue growth in California, but the state has responded by increasing its top marginal tax rate, causing its growth rate to accelerate after 2009, according to a new study released Monday by credit rating agency Standard & Poor’s.
The new S&P report found that California’s average annual tax revenue growth went from nearly 11 percent between 1950 and 1979 to a low of 3.4 percent between 2000 and 2009.
Since 2009, the state has recovered some of its growth to 7.2 percent.
Nationally, as the share of income going to the top 1 percent of earners over the past three decades has increased, the rate of state tax revenue growth has halved, taking a toll on state governments.
Last month, Gov. Jerry Brown suggested that Democratic policies are helping to combat the wealth gap.
“If the consumers are up to their eyeballs in debt, aren’t making a decent salary, how the heck are they going to buy anything?” Brown asked in addressing the California School Employees Association, a school labor group. “And if they don’t buy anything, the economy doesn’t go forward and doesn’t work.”
Brown championed his tax measure and won in November 2012. Proposition 30 raised the statewide sales tax to 7.5 percent for four years and income taxes rates to between 10.3 and 12.3 percent for seven years on income over $250,000 a year. Millionaires pay an additional 1 percent, bringing the top income tax rate to 13.3 percent.
When it was passed, the Brown administration declared that Proposition 30 “makes California’s tax system more fair” and helped prevent devastating cuts to public schools and higher education.
Also, California’s first minimum wage increase in six years started in July, rising to $9 an hour. It will climb to $10 an hour in 2016.
The income gap is expected to play a role in this year’s race for governor, in which Republican candidate Neel Kashkari, a former U.S. Treasury official and Goldman Sachs investment banker, has sought to highlight California’s status as having the highest poverty rate in the nation to challenge Brown.
Kashkari has called for a massive overhaul of the state’s education system to combat poverty. He said Brown and fellow Democrats in the state Legislature are unwilling to implement major overhauls because of political and financial ties to powerful teachers’ unions. Brown’s finance spokesman, H.D. Palmer, said the governor reformed school funding to direct more money to lower-income students, foster children and those who are English-learners.
“The root cause of income inequality is a failure of our education system,” Kashkari said. “People who get a good education are able to ride the economic growth opportunity. If you don’t get a good education, you’re left behind as the economy expands.”
According to 2012 census data, California’s bottom 20 percent of households earn an average of a little more than $12,500 a year. The top 20 percent of households earn nearly 17 times more at an average of about $211,000 a year.
The top 5 percent of average households makes roughly $369,000 a year.