LYNN LA • APRIL 27, 2023
From CalMatters Capitol reporter Alexei Koseff:
Tax increases are sensitive business in politics. So it didn’t take long Wednesday — all of two hours — for Gov. Gavin Newsom to swiftly and decisively reject the latest idea from Democratic lawmakers to balance California’s budget by pumping businesses for more cash.
Ahead of Newsom’s revised budget proposal that he will unveil in mid-May, Democrats in the state Senate put forward their own plan Wednesday setting out their priorities for the upcoming negotiations. It included a bold provision that immediately ruffled some feathers: Suspending a major business tax credit and hiking the tax rate on the highest corporate earners to raise billions of dollars.
Under the proposal, California would pause the net operating loss deduction, which allows businesses to carry forward their losses to future tax years, whenever there is a “budget emergency,” raising about $5 billion annually — though only temporarily, because companies could claim those credits again once the emergency ended.
The Senate Democrats’ plan would also increase 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 2,500 largest companies operating in California. This would be partially offset by lowering the tax rates by more than 2 percentage points on those first $1.5 million in profits, benefiting smaller businesses.
Sen. Nancy Skinner, the Berkeley Democrat who leads the Senate budget committee, said this approach would avert many potential cuts that Newsom laid out in his January budget and even enable some critical new spending, despite a deficit the governor has projected to be $22.5 billion in 2023-24.
- Skinner: “The types of investments we made are things that have been needed in California for a very long time.”
Corporations that got a huge federal tax cut under then-President Donald Trump would “begin to pay their fair share,” Skinner said, allowing California to increase school funding, tax credits for low-income residents, payments to child care providers and programs to combat homelessness.
Don’t count on it.
Newsom, who frequently declines to comment on legislative proposals, almost immediately swatted down the idea as bad for California’s business climate and its budget stability. In a statement, spokesperson Anthony York said the governor could not support the tax increases or “massive ongoing spending.”
- York: “It would be irresponsible to jeopardize the progress we’ve all made together over the last decade to protect the most vulnerable while putting our state on sound fiscal footing.”
Even with the governor’s support, raising taxes is a heavy lift, requiring a two-thirds vote of both houses of the Legislature. A spokesperson for Assembly Speaker Anthony Rendon, a Lakewood Democrat, did not respond to questions about whether his caucus is open to the Senate Democrats’ budget proposal.
Discussions over a state spending plan will begin in earnest next month, and legislators must pass a balanced budget by June 15 or forgo their paychecks.
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