California Dems push state constitutional amendment that could double the state’s income taxes.
QUICK FACTS:
- California would enact a sweeping, first-in-the-nation universal healthcare plan under a proposal unveiled Thursday by a group of state Democratic lawmakers, proposing a broad array of new taxes on individuals and businesses, The LA Times reports.
- Individual households will on average pay $12,250 in increased taxes under the proposed amendment, according to Tax Foundation’s Vice President of State Projects Jared Walczak, reports BizPacReview.
- Increased payroll taxes would commence for employees making more than $49,990, Human Events reports.
- The tax increases would be authorized under ACA 11 and would be used to fund a government healthcare program proposed by Assembly Bill 1400.
- Combined, the bills would create a $200 billion taxpayer-funded single-payer healthcare system for all California residents, notes Human Events.
WHAT WALCZAK SAID:
- Walczak explained the two additional taxes on top of the payroll taxes that would be added, including a surtax on top of the existing individual income tax that would start for those making $149,509 or more, as well as a 2.3% gross receipts tax on any gross business income after the first $2 million.
- “Imagine, for instance, the overly simplified hypothetical of a company with 49 employees making $80,000 each. At 49 employees, the company has no payroll tax burden. Hiring one additional employee generates a tax bill of $90,000—more than that employee’s salary!” Walczak wrote.
- “Gross receipts taxes are widely understood as extremely disruptive and inequitable taxes, because they are imposed on businesses without regard to their profit margins,” Walczak went on to explain. “For low-margin businesses like supermarkets, 2.3 percent of gross receipts may literally exceed current profits even if the company is doing well. For instance, Kroger’s profit margins dipped to 0.75 percent in late 2021 and have historically hovered around 1.75 percent.”
- “These taxes are even worse for businesses posting losses, including startups that haven’t turned profitable yet, because they are taxed on their receipts even if their expenditures exceed revenues. For startups, a high-rate gross receipts tax could be disastrous.”
OPPOSITION TO THE TAX INCREASE:
- President of the California Business Roundtable Rob Lapsle emphasized how the new proposal would impose a financial burden on those struggling with the economic impacts of the Covid-19 pandemic, according to The Times. “California already has near-universal healthcare coverage,” Lapsley declared in a statement, adding, “AB 1400 would eliminate healthcare options and force everyone into an untested government-run program.”
- Republicans criticized the procedural changes approved by Democrats to fast-track the bill, which has sat for months in the Assembly without any public hearings, notes The Times. “The Legislature’s majority party just voted to move a radical single-payer bill forward without an independent cost analysis,” said Assemblyman Jordan Cunningham (R-Paso Robles), vice chairman of the Assembly Rules Committee.
BACKGROUND:
- The Democrat-led proposal “now laid out in separate pieces of legislation, faces significant hurdles in the coming months — first at the state Capitol, with opposition from groups representing doctors and insurance companies, and then possibly at the ballot box, as voters would have to approve the taxes in an amendment to the California Constitution,” The Times notes.
- “The plan’s proposed tax increase might present the most difficult political hurdle: As a constitutional amendment, it would require a supermajority vote in both the state Senate and Assembly and then ratification by voters in either the June or November statewide election. While Democrats have held a supermajority of seats in both houses for the better part of a decade, they have rarely found enough support within their ranks for a broad-based tax increase.”
