California Senate Democrats this week unveiled a proposal that would increase taxes on California businesses to compensate for budget shortfalls. If passed, certain businesses will see their corporate income tax rate increase to 10.99% to fund about $5 billion for social programs.
CalChamber President and CEO Jennifer Barrera issued a statement on the proposal, pointing out that the tax increase is unnecessary and will further burden businesses:
“The tax increase proposed today by Senate Democrats is unnecessary because of the prudent build-up of the rainy-day fund. Increasing taxes will send the wrong signals to job creators and investors in the state’s economy,” she said. “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.”
California businesses already pay some of the highest taxes in the country, and more recently have had to pay higher pandemic-related unemployment insurance taxes, higher workers’ compensation rates and other state-mandated costs of doing business.
The tax Senate Democrats are proposing is exactly the opposite approach to saving jobs and seeing the state through any economic downturn.
Higher Deficit Numbers Expected Next Month
The Senate Democrats’ proposal is a response to the budget numbers released in January, when Governor Gavin Newsom estimated the state would face an estimated $22.5 billion deficit. Deficit figures are expected to be steeper when the Governor releases his updated budget proposal next month. This is due to a suspected drop in projected tax revenue.
Moreover, the tax extension offered to California taxpayers earlier this year will complicate projections. According to the Associated Press, Governor Newsom and lawmakers will have to pass a new spending plan before July 1 without knowing how much money the state has.
After the new business tax was announced, a spokesman for the Governor expressed their skepticism about that approach.