The ambitious legislative proposal seeks to assemble a single-payer healthcare system and use the increased taxes to fund it. While the legislation faces an uphill battle, Gov. Gavin Newsom has publicly voiced support for single-payer systems in the past. He has yet to weigh in on the new legislation.
Jared Walczak, vice president of state projects at the Tax Foundation, revealed to the Washington Examiner that if passed, the legislation would amount to a $163 billion per year tax increase that would effectively double state collections. That increased revenue comes with a cost, though, one borne by taxpayers that could push residents to lower-tax states. “You would expect to see a substantial exodus of businesses and middle- and high-income earners,” Walczak spoke of California if the tax-and-spend proposal were to become law.
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Kyle Pomerleau, a senior fellow at the Conservative American Enterprise Institute, explained that the proposal includes three main revenue raisers: an increase to income taxes for high-income individuals, payroll tax on workers’ wages for companies of a certain size, and a gross receipts tax.
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Under the new proposal, the top marginal income tax rate would sit at a grand 18.05%. The whooping number is much more than the 12.3% rate that those at the top of the bracket are paying now to live and work in the Golden State.
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The payroll tax plan applies to employees with an annual income of higher than $49,990 and could be seen as creating a tax cliff because it only applies to companies with more than 50 workers. Companies might attempt to avoid hiring more employees to avoid having the tax imposed, which could disincentivize businesses from expanding.
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Perhaps the most controversial element of the proposal is the gross receipts tax. Walczak pointed out that Ohio introduced a gross receipts tax after it repealed its corporate income tax and other streams of revenue. The Ohio receipts tax is only 0.26%, and California’s tax would be much more aggressive at 2.3%.
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“If we think about the fact that grocery stores typically have margins lower than 2%, if they didn’t change their prices, this tax would be more than the entire profit of a typical grocery store,” Walczak stated, pointing out that the tax would increase existing inflationary pressure on goods. “It would literally be impossible to pay this tax out of profits based on current prices.”
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