Facing a steep budget deficit, Democrats in the California State Senate are rolling out a plan to raise corporate tax rates.
The move comes in the face of cost-cutting measures in Gov. Gavin Newsom’s 2023-2024 fiscal year budget following years of heavy spending amid surpluses.
The big picture: The new tax plan would create two tax rates for businesses in California, with companies paying 6.63% on the first $1.5 million they make and any money made above that taxed at 10.99%.
- The higher tax rate would only apply to thousands of California firms with an eye to raking in an extra $7.2 billion in revenue for the state.
- The proposal is being framed by Democrats 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.
State of play: California is facing an estimated $22.5 billion budget deficit, which could make the Democrats’ tax proposal infeasible, and lawmakers will have to pass a new spending plan before July 1 without knowing how much money the state has.
The other side: The proposal has been met with stiff opposition from the business community and Democratic Governor Gavin Newsom, who has resisted raising taxes in the past and could not support the proposal.
- Newsom’s spokesman said it would be irresponsible to jeopardize the progress made over the last decade to protect the most vulnerable while putting the state on sound fiscal footing.
- The proposal still has a long way to go before becoming law, as tax increases require a two-thirds vote of both houses of the Legislature, and leaders in the state Assembly have not yet agreed to the plan.
- The California Chamber of Commerce opposed the plan, saying a tax increase would send the wrong signals to job creators and investors in the state’s economy.
