“California Dems suggest tax modifications for businesses”
California’s Democratic Senators have proposed a new tax plan aimed at levying higher taxes on some of the largest corporations operating in the state while reducing taxes for small businesses. The current plan has met strong opposition from businesses and Democratic Governor Gavin Newsom, leaving rocky budget negotiations ahead for California.
At present, all businesses in California are subject to a state tax rate of 8.84% on their income, but this new proposal would create two separate tax rates for businesses. Businesses that earn less than $1.5 million would only pay 6.63% tax rate, while the remainder of their earnings would be taxed at a higher rate of 10.99%.
The new tax rate would apply only to 2,500 corporations, and it is predicted to increase the state’s annual revenue by $7.2 billion. The remaining small businesses would benefit by paying a lower tax rate, reducing state revenue by about $2.2 billion. The pending $5 billion would help low-income earners, fund tax credits, and enhance public programs in California such as public education, child care, and combatting homelessness.
While the plan has a long way to go before becoming law, as tax increases require two-thirds votes from both houses of the Legislature, Democrats that control the majority seats in both the chambers are in support of the new proposal, and are selling the tax increase as a partial reversal of the federal tax cuts signed into law by former Republican President Donald Trump, which nearly every Democrat in California opposed including Gov. Newsom.
Despite this, Democratic Gov. Gavin Newsom is opposing the proposal, preferring not to raise 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. Newsom has previously campaigned against a ballot initiative that would have increased tax rates on the wealthy to fund environmental programs. Newsom’s spokesman Anthony York said that the governor could not support the proposal during a press conference, stating, “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.”
The California Chamber of Commerce also opposed the proposal, stating that a tax increase would “send the wrong signals to job creators and investors in the state’s economy,” while John Kabateck, California state director for the National Federation of Independent Business, believes that the proposal “looks appealing at first glance” but advises caution in endorsing it. The proposal will face much debate and opposition before becoming law, but holds the potential to promote equitable tax reform in California.