It didn’t take long for a budget proposal from California’s Senate Democratic Caucus to catch attention amid a soaring, multi-billion dollar deficit.
The proposal, which would slap a substantial tax hike on Golden State businesses, won rare condemnation from Gov. Gavin Newsom less than a day after it was proposed.
Driving the news: The proposal by Senate Democrats would seek to raise billions of dollars by suspending a major business tax credit and hiking the tax rate on the highest corporate earners to balance California’s budget.
- The proposal includes pausing the net operating loss deduction, which permits businesses to bring forward their losses to future tax years, raising about $5 billion annually during a “budget emergency,” which companies could claim again once the emergency ended.
- Senate Democrats’ plan would also raise the tax rate by more than 2 percentage points on taxable corporate income above $1.5 million, bringing in an additional $6 billion or more per year from the largest 2,500 companies operating in California.
Newsom’s take: Anthony York, Newsom’s spokesman, didn’t mince words about the proposal, announcing that Newsom would not support the tax increases or “massive ongoing spending” adding that it would be “irresponsible to jeopardize the progress we’ve all made together over the last decade” balancing the needs of California’s most vulnerable while keeping the state financially solvent.
What’s next: Newsom is slated to roll out his revision to the budget in mid-May, offering a clearer path to the impact of declining tax revenues and the projected deficit for fiscal year 2023-2024.
- Currently, the Newsom administration has tabbed the deficit at $22.5 billion.
- The Senate Democrats’ proposal would require a two-thirds majority vote in both houses of the Legislature to be approved, along with surviving an override of a likely Newsom veto.