California already has some of the highest taxes in the United States and is losing residents as a result. Yet Golden State liberals aren’t deterred. They’re now pursuing a state constitutional amendment, ACA 11, that could double California’s taxes.
The proposed amendment would hike several key taxes to fund a state-level government healthcare scheme. According to the right-leaning Tax Foundation, it would increase the average household’s taxes by an astonishing $12,250.
It’s estimated that the amendment would increase state revenue by $163 billion a year, which is more revenue than California had ever seen in an entire year before 2020. (That means it’s effectively doubling the state’s taxes.)
As the Tax Foundation’s Jared Walczak explains, the tax hikes take three forms. There’s an income surcharge (on top of the already-high state income taxes) that applies starting at $149,509 in earnings. There’s also a payroll tax add-on, with the top rate applying to employees earning $49,990 or more. Then, there’s a 2.3% business tax hike on gross receipts above the first $2 million a business takes in.
California lawmakers have introduced a plan to almost *double* state tax revenue, at an additional cost of $12,250 per household.
A new 18.05% all-in top marginal rate on income.
— Jared Walczak (@JaredWalczak) January 6, 2022
Bizarrely, this tax hike proposal comes at a time in which the California government is already seeing record levels of tax revenue and running a budget surplus!
Some of the taxes are also harmful to the economy, particularly the payroll tax and the gross receipts levy. Walczak explains that because the payroll tax increase kicks in at 50 employees, it creates a “tax cliff” that punitively taxes businesses and discourages growth beyond 49 employees.
“Imagine, for instance, the overly simplified hypothetical of a company with 49 employees making $80,000 each,” he writes. “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!”
So, too, the tax on gross business receipts is poorly structured and harmful. Walczak explains:
Gross receipts taxes are widely understood as extremely disruptive and inequitable taxes, because they are imposed on businesses without regard to their profit margins. 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.
Now, proponents would argue that Californians should nonetheless be happy with these plans because they would get “free” government healthcare in exchange for their huge tax increases. Yet it’s hard to imagine that government healthcare is worth a household facing $12,250 in taxes. (If it were truly so great, the government could make it a voluntary program, and people would choose it.) Millions of Californians have excellent private healthcare coverage and undoubtedly want to keep it.
The most likely outcome? If ACA 11 comes to pass, the mass exodus from California to lower-tax states will only speed up.