California Democrats Propose Tax Changes for Businesses

SACRAMENTO, Calif. (AP) — Democrats in the California Senate on Wednesday said they want to raise taxes on some of the largest corporations so they can cut taxes for nearly every other business.

But the proposal was met with swift opposition from the business community and Democratic Gov. Gavin Newsom — highlighting the likely rocky budget negotiations ahead for a state facing an estimated $22.5 billion budget deficit.

All California businesses pay a state tax rate of 8.84% on income, a figure that has not changed since 1997. This new proposal would create two tax rates for businesses in California. Companies would pay 6.63% on the first $1.5 million they make. Any money made above that would be taxed at 10.99%.

The higher tax rate would only apply to about 2,500 companies and would bring in an extra $7.2 billion in revenue for the state. Meanwhile, about 1.6 million businesses would benefit from the smaller tax rate, reducing state revenue by about $2.2 billion.

The money that is left over — about $5 billion — would go to poor people who claim tax credits and would boost state programs for public education, child care and combatting homelessness.

The proposal is still a long way from becoming law. Tax increases require a two-thirds vote of both houses of the Legislature. Democrats control a majority of seats in both chambers, but leaders in the state Assembly have not yet agreed to the plan.

Then there’s Democratic Gov. Gavin Newsom, who would have to sign off on the proposal. Newsom has resisted raising taxes in the past as he has been building his national profile in recent years in advance of a possible run for president beyond 2024. Last year, Newsom campaigned against a ballot initiative that would have raised taxes on the rich to pay for environmental programs.

Wednesday, Newsom spokesman Anthony York said the governor could not support the proposal..

“It would be irresponsible to jeopardize the progress we’ve all made together over the last decade to protect the most vulnerable while putting our state on sound fiscal footing.” York said.

Still, Democrats in the Senate will try to sell the idea by framing it as a partial reversal of the federal tax cuts signed into law by former Republican President Donald Trump. Nearly every Democrat in California, including Newsom, opposed those cuts, which Trump signed into law in 2017.

“The Senate’s 2023 plan will provide much needed tax relief to those small businesses which are the backbone of our economy and that have been really whacked by inflation,” said state Sen. Nancy Skinner, a Democrat from Berkeley and chair of the Senate Budget Committee. “But it also ensures that the biggest corporations that pocketed massive tax cuts under Trump will start to pay their fair share.”

The California Chamber of Commerce opposed the plan on Wednesday, saying a tax increase would “send the wrong signals to job creators and investors in the state’s economy.”

“Now is not the time to test California’s ability to withstand the impact of an economic downturn or a recession by placing our economic success at risk,” said Jennifer Barrera, the chamber’s president and CEO.

John Kabateck, California state director for the National Federation of Independent Business, which represents small businesses, said the proposal “looks appealing at first glance.” But he said his years of experience in dealing with leaders in the state Legislature has taught him not to endorse proposals too quickly.

“We’re not very keen on getting a tax break for Main Street at the expense of other businesses,” Kabateck said.

Democrats in the state Senate based their proposal on budget numbers the Newsom administration released in January. Back then, Newsom said the state was facing an estimated $22.5 billion deficit.

Those numbers will change next month when Newsom updates his budget proposal based on new tax revenue received since January. It’s likely the budget deficit will have grown, as tax revenues have continued to fall below projections. A larger budget deficit could make the Democrats’ tax cut proposal infeasible.

Adding to the difficulty is that Newsom and lawmakers will have to pass a new spending plan before July 1 without knowing how much money the state has. That’s because many Californians won’t pay their taxes until mid-October, taking advantage of an extension offered after a series of strong winter storms caused widespread damage throughout the state.

Republican state Senate leader Brian Jones said he liked that Democrats were “finally proposing to give a little back to small business.”

Click here to read the full article in AP News

Tax Hike Drives Millionaires Away From California

leaving-californiaAccording to new research released by Charles Varner, associate director of the Stanford Center on Poverty and Inequality, California lost an estimated 138 high-income individuals following passage of the Proposition 30 income tax increase championed by Gov. Jerry Brown (D) and approved by Golden State voters in 2012.

This new research by Varner updates a previous paper released six years ago that looked at domestic migration to and from California following a 2004 income tax hike.

“One reason we wanted to update our previous paper is that this tax change in 2012 is the largest state tax change that we have seen in the U.S. for the last three decades,” Varner said.

Prop. 30 raised the state’s top income tax rate by more than 29%, increasing it three percentage points from 10.3% to 13.3%, which is now the highest state income tax rate in the nation. Prop. 30 also hiked the tax rate on income between $300,000 and $500,000 by two percentage points (a 21.5% rate increase), and raised the rate on income between $500,000 and $1,000,000 by three percentage points (a more than 32% rate hike).

In 2016, California voters extended the Prop. 30 income tax increases, which were originally scheduled to expire in 2019, until 2030. There will be an effort to extend those income tax hikes yet again prior to their expiration in 2030; book it now.

Varner’s new research examined taxpayers who were and were not hit by the Prop. 30 rate hikes. He found that in the two years before the Prop. 30 tax hike was imposed (2011 and 2012), net in-migration for both groups “was positive and roughly constant.” Yet following 2012 and the passage of Prop. 30, net in-migration dropped for households that were facing an effective tax increase of 0.5 percent or more. The reduction was greatest for households facing the highest effective tax hike, according to Varner and his coauthors.

This isn’t surprising for those who are familiar with other attempts to soak the rich with punitive state income tax hikes on high earners. Take what happened in Maryland after Martin O’Malley, the former Democratic presidential candidate and governor, imposed a millionaires tax hike a decade ago. …

Click here to read the full article from Forbes.com

Patrick Gleason is vice president of state affairs at Americans for Tax Reform, and a senior fellow at the Beacon Center of Tennessee. Follow Patrick on Twitter: @PatrickMGleason

Atkins Proposes $1.8 Billion Tax on CA Drivers

For the second time in as many weeks Californians got the news that Sacramento politicians are proposing yet another big tax hike.  The truth is that new taxes would never be required were it not for Sacramento’s mismanagement of existing tax dollars.

Last week, it was the proposal to deal with the very real problem of “revenue volatility” in California’s tax structure with the very unreal “solution” of a $10 billion tax on services.

But the latest proposal comes from new Senate leader Toni Atkins who proposes a brand new tax on drivers to pay for highway and road repairs in California.  This new “fee” would take $1.8 billion dollars out of the pockets of hard working California citizens over the next five years.

Now, most Californians would wholeheartedly agree that our roads are in terrible shape.  Years of neglect have resulted in a highway system that, according to a recent state report, requires a massive infusion of $59 billion.  But taxpayers have a very good question that has yet to be answered:  How is it that California has the highest gas tax in the nation and yet cannot keep its roads in decent condition?

Moreover, although the exact nature of this new “fee” has yet to be determined, Senator Atkins’ comments in proposing the new revenue source can only be described as foolish and insulting. Here is what she said:  “California cannot have a strong middle class or a thriving economy if our roadways are congested and people and goods cannot move efficiently.”

Really?  A left-wing politician now claims that this new tax is needed to protect the middle class?  She is simply blind to the truth that the progressive policies of heavy taxation and over regulation are crushing the middle class in California.  As is so common now in California, statements from politicians such as Atkins reveal a profound disconnect between their pampered lives and the lives of ordinary citizens.

So, instead of slamming Californians with another tax hike, what is a better way to meet the funding needs for our crumbling highway system?  Glad you asked.

First, let’s demand that gas tax revenues pay for roads, not bike lanes, environmental mitigation programs and mass transit.  The latter programs are all well and good, but gas taxes should go for roads.  (For purposes of full disclosure, as a cyclist I support bike lanes.  But I don’t want my gas taxes paying for them).

Second, how much of our transportation dollars are wasted on burdensome labor restrictions?  So-called “Project Labor Agreements” add between 25 to 35% to the cost of highway construction. Let’s get rid of PLA’s and, while we’re at it, “prevailing wage” laws which also add to the cost of construction unnecessarily.

Third, let’s direct valuable transportation dollars to those systems that actually work.  This would mean abandoning the doomed-to-fail High Speed Rail Project that is sucking up tax dollars in a way that voters never approved.

Fourth, we can agree that gas tax revenue has fallen a bit short of expectations because cars are now more fuel efficient.  But if that is the case, why does the state still subsidize electric vehicles? Shouldn’t we abandon those subsidies and direct those dollars to filling potholes?

Instead of reflexively demanding higher taxes, our elected officials should do what other states seem to do without controversy – prioritize spending.  Now there’s a novel concept.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

Originally published at HJTA.org