Legislative Update

Another Income Tax Increase Is Proposed

rotunda state capitol ca

A group of lawmakers this week proposed a union-backed personal income tax increase on California’s highest earners, with a top rate as high as 16.8 percent.

California’s current top PIT rate of 13.3 percent already is the highest in the United States.

The proposal introduced by Assembly Member Miguel Santiago is AB 1253 – the same bill number as an identical proposal he introduced last year that was held in the Senate Governance and Finance Committee without a vote.

Santiago said the bill, which is backed by the California Teachers Association, will be jointly authored by Assembly Members Lorena Gonzalez, Member Ash Kalra and Alex Lee. Santiago also introduced AB 310, which imposes a tax on wealth greater than $50 million. The bill is the companion measure to ACA 8, introduced by Lee.

AB 1253 imposes a 1 percent surcharge on taxable income over $1.18 million, a 3 percent surcharge on income over $2.36 million and a 3.5 percent surcharge on income over $5.9 million – all in addition to the existing 13.3 percent tax.

A group of moderate Democrats voiced opposition to proposals to increase taxes on the state’s highest earners, expressing concern that an income tax hike or wealth tax would be the “tipping point” for many wealthy individuals, prompting them to follow in the footsteps of Elon Musk, Larry Ellison and other wealthy individuals who have left California in recent years.

In a March 25 CalMatters column, Assembly Members Cottie Petrie-Norris, Tom Daly, Tim Grayson, Sharon Quirk-Silva, James Ramos, Carlos Villapudua and Blanca Rubio wrote:

“Despite popular political slogans to the contrary, millionaires and billionaires already contribute a disproportionately large share of our state’s income tax revenue. California has long maintained the highest personal income tax rates in the nation for its wealthiest residents. … Amid the COVID-19 crisis, the wealthiest Californians have been crucial to keeping our state budget afloat. Despite the economic calamity afflicting many segments of the economy, the surging stock market has produced higher-than-expected tax revenue for the state. This has resulted in at least a $15 billion budget surplus that will allow the Legislature to reverse cuts to schools, health care and local governments. The crucial importance of this windfall against the current economic backdrop cannot be overstated. Put simply, if more billionaires flee California, the tax burden on the rest of us will increase.”

CalTax opposes the policy changes proposed in AB 1253, noting that a tax increase is unnecessary at a time when state revenue is outpacing projections by $14.3 billion, California is expected to receive approximately $26 billion in federal COVID-19 relief, and the state government has more than $22 billion in reserves.

“More taxes are not the answer to California’s high cost of living,” CalTax President Robert Gutierrez said. “We need to focus on getting people back to work, not making it harder for people to stay in our state.”

The income tax increase was unveiled within days of a PIT increase being amended into AB 65 (Low), which would create the California Universal Basic Income Program funded via a 1 percent surcharge on income above $2 million.

Governor Gavin Newsom and his top aides have stated that the governor will not sign legislation calling for personal income tax increases, corporation tax increases or wealth taxes.