What Prop. 3 Would Do
Proposition 3 would amend the California Constitution to permanently extend the state’s marginal income tax rates on the top 2% of earners, which have been in place since 2012 under Proposition 55 and are set to expire in 2030. In 2025, the top 2% income bracket started at $371,001 a year for individuals and $743,001 a year for couples filing jointly. The tax applies to salaries, wages, interest, and profits from stocks, property, and other investments.
Revenue would primarily support K–12 schools and community colleges under 1988’s Proposition 98. About 40% — $2 billion to $6 billion annually — would go to education, while remaining funds could support children’s healthcare, the Budget Stabilization Account (rainy day fund), and other General Fund uses. Because the revenue counts toward the state’s required education funding, it frees up General Fund dollars for other programs.1
If the tax rates set in 2012 expire, the state would lose between $5 billion and $15 billion annually.2 In the short term, the state would need other General Fund revenues to meet education funding requirements; over time, the Proposition 98-mandated spending minimum could decline depending on the formula in use, economic conditions, and legislative decisions.
The Backstory
California’s personal income tax structure is the most progressive in the country (meaning the tax rate is higher the more income one earns). Voters approved Prop. 30 in 2012 to temporarily raise rates on high earners, then extended it through Prop. 55 in 2016 (expiring in 2030). Before Prop. 30, the top rate was 9.3%.
The tax structure for the top 2% of earners in California under different scenarios depends on whether Prop. 3 passes.
Single Filer Income Tax Rates Under Prop. 3
Taxable Income (brackets adjusted annually for inflation) | Marginal Tax Rate (now through 2030) | If Prop. 3 Passes | If Prop. 3 Is Rejected |
$371,001–$446,000 | 10.3% | 10.3% | 9.3% |
$446,001–$743,000 | 11.3% | 11.3% | 9.3% |
Above $743,000 | 12.3% | 12.3% | 9.3% |
Joint/Other Filer Income Tax Rates Under Prop. 3
Taxable Income (brackets adjusted annually for inflation) | Marginal Tax Rate (now through 2030) | If Prop. 3 Passes | If Prop. 3 Is Rejected |
$743,001–$892,000 | 10.3% | 10.3% | 9.3% |
$892,001–$1.5 million | 11.3% | 11.3% | 9.3% |
Above $1.5 million | 12.3% | 12.3% | 9.3% |
Source: Legislative Analyst’s Office, A.G. File No. 2025-016
Prop. 98 requires California to provide a minimum level of funding for K–12 schools and community colleges each year, based on state revenues, economic growth, and student enrollment. Local property taxes also contribute to the Prop. 98 minimum. Together, these requirements typically direct about 40% of General Fund revenues to education.3
Of the education funding, 89% goes to K–12 schools and 11% to community colleges. None of the funding can be used for administrative costs. After meeting education requirements, revenues go to debt service and the rainy day fund; 50% of remaining funds, capped at $2 billion annually, may support Medi-Cal children’s and family health services.
Medi-Cal provides free or low-cost health care to nearly 15 million Californians. This funding is especially important after federal bill H.R. 1 made major cuts to health care and food assistance. Federal Medicaid cuts could cost Medi-Cal tens of billions of dollars annually and cause up to 2 million Californians to lose coverage.
Since January 1, 2012, the top-earner income tax has generated more than $119 billion for education and healthcare, helping more than double school funding and support transitional kindergarten, expanded learning, free school meals, COVID-19 recovery, and teacher recruitment.4 Before the passage of Prop. 30, California ranked 50th among states in per-student education spending. Now it ranks 16th (or 31st when accounting for the state’s cost of living).5 However, because 80% of school spending goes to staff salaries and benefits, the state still has 22 students per teacher, compared with 15.4 nationally.6
Recently, the tax has generated about $9 billion to $10 billion annually, although revenues fluctuate with the economy and stock market. The LAO estimates annual revenues could range from $5 billion to $15 billion.
Notably, high earners have not fled the state because of this tax; California has had the second-lowest out-migration rate among $200,000-plus households of any state over the past decade.7 The state has lost less-educated and lower-income adults faster than higher-income and college-educated adults because of affordability and cost-of-living concerns.8
Californians for Protecting Public Education, Health Care and Budget Stability led the effort to put Proposition 3 on the ballot, with funding from the California Teachers Association and California Federation of Teachers. Some proponents oppose Prop. 40, the Billionaire Tax, out of concern that it could undermine support for Prop. 3.
A citizen-initiated measure, Prop. 3 needs a simple majority (50% plus one vote) to pass.
Equity Impacts
Allowing the state’s marginal income tax rates on the top 2% of earners to expire would require major cuts to education spending on the next generation of Californians, which would disproportionately impact low-income children and students of color. This income tax revenue enabled California to become the first state offering free breakfast and lunch to all TK–12 students, plus free after-school programs prioritizing low-income neighborhoods.
California’s educational funding formula, the Local Control Funding Formula, directs the most resources to students who face the greatest educational hurdles, including grants for English learners, foster youth, homeless students, and low-income families in high-poverty districts.9
Prop. 3 would backfill federal cuts and sustain up to $2 billion in annual funding for Medi-Cal, most of which goes to low-income people and people of color. Without state budget and policy intervention, the cuts from H.R. 1 are expected to completely destabilize California’s healthcare and hospital system, exacerbate food insecurity, and cause children to miss routine screenings and vaccines.10
The measure is highly progressive; it does not increase taxes on couples earning less than $743,001 or individuals earning less than $341,001, in today’s dollars.
Pros
- Prop. 3 would help backfill ongoing funding needs for children’s healthcare and Medi-Cal, which is facing severe federal funding cuts.
- The measure would tax only California’s highest earners.
- It would not increase the current income tax rate, which was set in 2012.
- Any leftover capital-gains-driven revenue would lower state debt and help build the rainy day fund, which supports the state’s financial health and mitigates the volatility of this funding source.
- There is no evidence that the tax has contributed to any significant tax flight from the state.
- Because the tax is permanent, it would facilitate greater predictability in state revenues.
Cons
- The state’s reliance on taxing the highest income earners would increase state budget volatility.
- The measure is restrictive: it would require meeting the Prop. 98 education minimum before allowing flexibility in funding allocation.
