Next Tax Increases on the Docket: Two Proposed Tax Hikes on the Rich

When the 2020-21 state budget was enacted a few months back, I made the case that the majority party’s spending plan essentially sets the stage for an upcoming battle over tax increases.

Back in 2011, former Gov. Jerry Brown pushed a budget plan that was heavily reliant on “trigger cuts,” or budget cuts that would be made unless voters agreed to a massive tax increase.  Ultimately, they did in the 2012 election when they passed Prop. 30.

The 2020-21 budget largely relies on the same strategy, only this year it relies on receiving billions in funding from Washington.  Further assistance to state and local government is a major sticking point in negotiations over the next stimulus package.  It’s unlikely anywhere near the amount of money Sacramento Democrats are relying on from Congress will materialize.  And it may take months – and likely a change in administrations – for more federal money to come to California.

In the final weeks of the legislative session, Democrats revealed their backup plans – two proposals to raise taxes on the “rich.”  Assembly Bill 1253, authored by Assemblyman Miguel Santiago, would raise the top tax rates in California – which are already the nation’s highest at 13.3 percent – even higher.

The bill would, retroactive to January 1, 2020, impose an additional tax of 1 percent of the amount over $1 million for those earning between $1-2 million; 2 percent of the amount over $2 million for those earning between $2-5 million; and 3.5 percent over the amount over $5 million for those earning in excess of $5 million.  The Los Angeles Times reports the bill could be a $6.8 billion annual tax hike.

Waving the class warfare flag, Santiago says of his bill, “this crisis has put a spotlight on enduring inequities, which will only worsen if we rely on the same failed playbooks of the past without asking nothing of those with great wealth.”

Meanwhile, Assembly Bill 2088 by Assemblyman Rob Bonta, would “apply a 0.4 percent wealth tax on the portion of a taxpayer’s net worth that exceeds $30 million.”

In a Facebook post, Bonta wrote, “the few with extreme wealth have seen their wealth grow even during the pandemic . . . Asking these well-resourced Californians to give a little more to keep our people working and support our most vulnerable is the right thing to do.”  According to the Sacramento Bee, the bill would “generate $7.5 billion for schools and the state’s social safety net.”

Of course, no one except perhaps some government employees will keep their jobs due to Bonta’s measure.

Responding to the likely criticism of his plan that wealthy taxpayers could decide to leave the state if it is enacted, Bonta told Fox Business’ Neil Cavuto in an interview that it would adopt a phased-in approach for those who leave the state.

“If you move in Year One, 90% of the tax bill applies…” he said, adding that the “following year it drops to 80% and so on until it is phased out to zero.”  It’s highly questionable whether this provision would be constitutional.

It’s unclear what the fate of these measures will be with just 2 weeks left in the 2020 legislative session.  A vote on AB 1253 was postponed earlier this month after its Senate policy committee hearing.  Bonta told the Sacramento Bee that the coalition supporting the bills, which includes the SEIU, California Federation of Teachers, and California Teachers Association, “plans to pursue both options, ‘perhaps both to be implemented,’ next year at the start of session.

In his first public comments on the issue at his Friday press conference, Newsom expressed caution.  He talked about the importance of “consider(ing) the impacts on those decisions on your ability to retain and attract talent, individuals, companies, and your competitiveness.  Everything needs to be considered in that light.  And I would encourage those that are making proposals in this space to consider those impacts in relationship to what may or may not be happening in other parts of this nation.”

And, as Newsom noted, there may be another tax hike come November when voters decide the fate of Proposition 15, which would impose a split roll property tax scheme in California – a roughly $11 billion annual tax hike.  If Prop. 15 and ABs 1253 and 2088 were all enacted, it would represent over $25 billion in tax increases in one year – and it still wouldn’t be enough for Sacramento’s big spenders.

Just like with ABs 1253 and 2088, proponents are already promoting Prop. 15 under the guise of generating billions in new revenue to prevent painful trigger cuts to popular programs.

Tim Anaya is the Pacific Research Institute’s senior director of communications and the Sacramento office.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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