Wealth Taxes to Fund EVs Fails in California

California midterms voters rejected Prop 30 and won't raise taxes on millionaires to fund clean energy initiatives involving electric vehicles.

Los Angeles Downtown Freeway
(Image credit: Getty Images)

During the 2022 midterm elections, California voters rejected Proposition 30. That tax measure would have wealthier California residents pay higher taxes to subsidize energy and climate initiatives that would include funding electric vehicles.

Proponents of Proposition 30 included ride share company, Lyft, which raised millions of dollars to encourage yes votes on the measure. On the other hand, California Gov. Gavin Newsom was among those who opposed Prop 30. In an ad encouraging the public to vote “no” on the energy and climate tax measure, Newsom described Proposition 30 as a “product of special interests.”

All of this bubbled to the surface in time for the 2022 midterm elections in part because of California’s zero emissions goals. The state wants to ban the sale of gas-powered vehicles by 2035. Increasing electric vehicle use and enhancing infrastructure for EV charging in the state are seen as keys to achieving that goal.

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What is Prop 30 in California?

On California’s Midterms 2022 ballot, a yes vote on Proposition 30 meant that taxpayers with personal income of over $2 million a year, would pay an addition 1.75% tax. So, from 2023 to 2043, the top income tax rate in the state would have increased from just over 13% to a little over 15%.

The revenue generated from the measure would have been used for zero-emission vehicle initiatives and to help with wildfire response and prevention, according to information provided on the ballot.

If voters had approved Prop 30, proponents said the tax revenue generated would range from $1.3 to $3 billion a year. Although a relatively small number of taxpayers would reportedly have been subject to the additional Prop 30 tax, some opponents worried about the impact that the measure would have. That’s because California already has relatively high tax rates. There were also questions concerning whether any of the revenue raised from the Prop 30 “wealth tax” would be set aside for other key areas of concern, like K12 education.

For those and other reasons, several high-profile organizations including the California Chamber of Commerce, the California Teachers Union, and business executives (including the CEO of Netflix), expressed opposition to the measure. And while some Californians also opposed Prop 30, early polls reportedly suggested that a majority of likely voters in California might be inclined to vote in favor of Proposition 30. The midterm elections results, however, project that Prop 30 in California will fail.

If Proposition 30 had passed, electric vehicle infrastructure, including EV charging stations, might have been enhanced with the revenue raised. Funds raised from the tax measure might also have helped to subsidize EVs purchases for some California residents.

The New EV Tax Credit

Subsidizing electric vehicle purchases has been a hot topic in 2022 in large part because of the Inflation Reduction Act, which was signed into law by President Biden in August. The massive legislation is designed to help reduce the deficit by combatting climate change, lowering healthcare costs, and increasing taxes on some larger corporations.

The law’s focus on clean energy is noteworthy. It provides nearly $270 billion in clean energy tax incentives and revamps tax credits for electric vehicles and EV charging equipment.

However, income and manufacturing limits for claiming the EV tax credits in the law have stirred controversy in recent months. For example, South Korea, the EU, and Sweden have expressed concern over the impact of the Inflation Reduction Act’s North American assembly and sourcing requirements will have on certain EV manufacturers

Those, and similar concerns here in the U.S., have caused some to wonder whether enough people will benefit from the new EV tax credit (i.e., able to claim the tax credit of up to $7,500 for an EV purchase.)

So, what does all this and Proposition 30 mean for California taxpayers? Overall, it appears that some policymakers and business leaders on both sides of the political aisle in California can agree that transitioning away from gas-powered vehicles in favor of EVs could be important. There also seems to be a level of agreement that comprehensive electric vehicle infrastructure and boosting EV purchases and use could be important for achieving zero emissions.

However, only the voters can decide increasing taxes on the rich via a measure like California Proposition 30, is the best way to raise the revenue needed to meet the state’s climate and energy goals. And the answer, for now, is no.

Kelley R. Taylor
Senior Tax Editor, Kiplinger.com

As the senior tax editor at Kiplinger.com, Kelley R. Taylor simplifies federal and state tax information, news, and developments to help empower readers. Kelley has over two decades of experience advising on and covering education, law, finance, and tax as a corporate attorney and business journalist.