California voters approved Proposition 3 on Tuesday, making permanent the higher income tax rates on top earners that were due to expire in 2031, according to unofficial returns that had it at nearly 59% yes early Wednesday. The rates date to 2012, were extended in 2016, and bring in a sum the state’s Legislative Analyst’s Office puts at $5 billion to $15 billion a year in state income tax revenue.
Only very high incomes sit inside the measure. CalMatters reports the rates apply to individuals earning more than $371,000 a year and couples earning more than $743,000, and those earners keep paying a 12.3% rate. For everyone below those lines, the vote changes nothing in the rate schedule. For everyone above them, the end date that was written into the tax is gone.
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What exactly did California voters lock in?
Voters first approved the higher rates in 2012 under Proposition 30, and Proposition 55 extended them in 2016. Ballotpedia’s page on the measure lists the affected brackets at 10.3%, 11.3% and 12.3%. Had Proposition 3 failed, the rate in all three brackets would have dropped to 9.3% once the current rates ran out.
Those brackets are not the whole top rate. California also charges a separate 1% surcharge on income over $1 million, which pays for mental health services. CalMatters says that surcharge brings the top combined rate to 13.3%, the highest in the nation. The surcharge is separate from the three brackets that were set to lapse.
The current rates run through the 2030 tax year and were scheduled to expire in 2031. Nothing in the measure creates a new start date. Instead, the rates simply keep running where the calendar would have ended them, which means the first change any taxpayer would have seen under a “no” vote would have shown up five years from now.
How much money depends on the top rates?
The Legislative Analyst’s Office says the measure maintains $5 billion to $15 billion of annual state income tax revenue. That is a wide range, and the analyst’s office ties it to the stock market: about $5 billion in a weak year and about $15 billion in a strong one. The swing shows how much of the money rides on the investment income and bonuses of a small group.
That group is small by design. The analyst’s office says the top 2% of California taxpayers pay about half of all state income taxes. CalMatters adds that in strong revenue years the tax makes up roughly 15% of the state’s K-12 school budget, a share that falls when markets do.
Most of the money moves through Proposition 98, the formula that sets aside about 40% of the state budget for schools and community colleges. Of that school money, 89% goes to K-12 schools and 11% to community colleges, Ballotpedia says. Revenue above the Proposition 98 requirement, up to $2 billion a year, goes to health care programs, and part of the rest is set aside in reserves for years when revenue falls.
Who argued over Proposition 3, and what did each side say?
The California Teachers Association was the main backer. Its president, David Goldberg, said in CalMatters’ preview coverage that the measure is “only a tax on the wealthiest Californians, but it’s vital for our schools,” and warned that a defeat could mean layoffs of up to 50,000 teachers. The union and allied groups raised more than $40 million for the campaign.
Opponents were few and spent little. Susan Shelley, vice president of the Howard Jarvis Taxpayers Association, questioned whether schools need more money given declining enrollment and called the spending “not sustainable.” She argued that higher taxes could push wealthy residents out of California. Opposition committees reported raising just $5,500.
After the results, Goldberg said “the people of California are willing to take a risk and support public education.” Debra Schade, president of the California School Boards Association, said voters “reaffirmed the importance of sustaining investment in public education.” A September PPIC survey had found 58% of likely voters planning to vote yes, so the roughly 59% showing tracked the polling.
What happened to the billionaire wealth tax on the same ballot?
California voters also saw Proposition 40, a separate measure that would have imposed an initially one-time tax on the total wealth of people with a net worth above $1 billion. The National Taxpayers Union Foundation said on Wednesday that “No” was leading and the measure had not been called. CalMatters had “No” ahead with just over 56% opposed as of 10 p.m. Tuesday.
The Tax Foundation wrote that California voters appear to have rejected the wealth tax. Supporters of that measure have said they plan to try again in 2028. The teachers union opposed Proposition 40 because it argued schools would get too little of that money, which left Proposition 3 as the education-funding tax on the ballot.
What does a permanent rate mean for taxpayers watching their own bracket?
For a taxpayer under $371,000, nothing about Proposition 3 touches this year’s return or next year’s. The rates that already apply to higher incomes stay on the books with no end date, and any later change would take another act of the Legislature or another vote of the people. Because the numbers above are unofficial returns, counties still have ballots to finish counting before the state certifies results.
The vote also shows how much a state’s income tax can move on a single ballot. A rate that looked temporary in 2012 is now permanent, while a proposal to tax billionaires’ wealth fell short. Retirees living in other states face the same question in different forms, because each state sets its own income tax rules, and those rules differ widely.
Does your state’s income tax reach your retirement income?
California just made a top income tax rate permanent by popular vote, a reminder that a state’s income tax rules can change on a single ballot and that each state treats retirement income differently. A retiree who assumes the old rules still apply can plan a year of withdrawals around the wrong number.
Cut Your Retirement Tax Bill: 12 Moves sets out your state’s rules, including the eight states that tax some Social Security, and works out how much of your Social Security is taxed on one worksheet. It also marks the Medicare surcharge line, where one dollar over can cost more than $1,100 a year per person.
Get the 12-move guide with your state’s tax rules and the Social Security worksheet →
This article was produced with AI assistance and edited for accuracy against the sources linked above.
David M. Keller is a finance writer based in Columbus, Ohio, covering personal finance and consumer-focused economic topics. He earned his degree in journalism from Ohio University and began his career reporting on local business and economic trends for a regional media outlet. Since then, he has contributed to a variety of online publications, focusing on clear, practical coverage of topics such as cost of living, debt, and everyday financial decision-making.
