In summary

Significant tax increases proposed in the Legislature would make California less competitive when seeking to attract jobs and investments.

By Robert Gutierrez

Robert Gutierrez is president and CEO of CalTax, the California Taxpayers Association, rob@caltax.org. He is co-chair of the Californians Against Higher Taxes.

Allan Zaremberg, Special to CalMatters

Allan Zaremberg is president and CEO of  CalChamber, the California Chamber of Commerce, Allan.Zaremberg@calchamber.com. He is co-chair of the Californians Against Higher Taxes.

Proposing tax increases is not something new or rare for members of the California Legislature. Each year, state lawmakers introduce myriad bills aimed at increasing taxes and fees on individuals, businesses and consumer products. 

What is new, however, is that prominent individuals have begun moving out of state, citing the Golden State’s burdens on businesses and wealthy individuals who pay the vast majority of taxes received by the state. And they are not wrong. Californians, in particular businesses and wealthy individuals, continue to pay some of the highest taxes in the nation.

A recent publication by the California Tax Foundation reported that the top 5% of earners pay 67.2% of the state’s total personal income tax revenue – an increase from 66.6% two years earlier. 

As for businesses, they pay more than two-thirds of the total property tax burden, at 67.05% in the 2019-20 assessment period, while homeowners accounted for the remaining 32.95%. The change reflects nearly a 4% increase from only two years earlier, and is nearly 9 percentage points higher than it was in 1978 when California voters approved the property tax reform initiative Proposition 13. 

This data, along with the recent budget projections by the California’s Department of Finance showing that state revenue is $16.7 billion ahead of projections made by the governor earlier this year, plus the $22 billion in reserves and the approximately $26 billion expected in federal COVID-19 relief, make it crystal clear that California is not in need of new taxes. 

Thankfully, Gov. Gavin Newsom has indicated that we will not support tax increases this year. Many others in the state Capitol also have come to understand that wealthy individuals and businesses already contribute a disproportionately large share of our state’s income and property tax revenue, and that keeping them in California is vital.  

Despite all this, there are those in the Legislature who continue championing a wide array of significant tax increases.

One of these measures is Assembly Bill 71, which would increase taxes $2.4 billion a year on California businesses and residents – a tax increase that would make California even less competitive when seeking to attract jobs and investments.

Additionally, a group of lawmakers proposed a union-backed personal income tax increase on California’s highest earners, with a top rate as high as 16.8%. The proposal, Assembly Bill 1253, calls for a 1% surcharge on taxable income more than $1.18 million, a 3% surcharge on income over $2.36 million and a 3.5% surcharge on income of more than $5.9 million – all in addition to the existing 13.3% tax. A tax increase like this would continue to drive high-income earners out of the state and take the revenue they contribute to the general fund along with them. 

​This measure proposes a major annual tax increase on California businesses and residents.

The income tax hike also would hit many small businesses and entrepreneurs, since many pay business taxes under the personal income tax structure.

Another major tax hike has been proposed in the form of Assembly Bill 310 and Assembly Constitutional Amendment 8, together calling for a new 1% tax on net worth in excess of $50 million and a tax of 1.5% on net worth in excess of $1 billion. This would cost taxpayers an additional $22.3 billion per year in new taxes – at least until the targeted taxpayers packed up and moved to any one of the 49 states that doesn’t impose this type of flawed tax. 

Unlike AB 1253, the “wealth tax” proposal requires voter approval and would appear on the 2022 ballot, where Californians could protect our state’s fiscal health by rejecting it soundly.

California needs a steadfast focus on keeping and attracting new investment. How we hold the line against new taxes this year and in the future will be a major factor in dictating California’s economic future.   

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