An analysis from the Tax Foundation suggests that Assembly Constitutional Amendment 11 (ACA 11), which demands two-thirds of both houses in the state legislature for approval, will propose “surtaxes atop the current individual income tax structure beginning at $149,509 in income,” a “graduated-rate payroll tax system with the top rate kicking in for employees with more than $49,990 in annual income” and a “gross receipts tax of 2.3 percent, excluding the first $2 million of business income.”
Passing the legislation will raise Californian's taxes by $12,250 per household, “roughly doubling the state’s already high tax collections,” the organization said. The top marginal wage rate would rise to a disturbing 18.05 percent, higher than the national median top marginal tax rate of 5.3 percent.
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According to the Tax Foundation, the legislation is meant to raise an additional $163 billion for California, which is more than what it raised in total tax revenue in any previous year.
Per the text of ACA 11, the single-payer healthcare system being proposed would benefit “every resident of the state” yet enable the legislature to “upon an economic analysis determining insufficient amounts to fund these purposes, to increase any or all of these tax rates by a statute passed by majority vote.”
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In practical terms, this would give the state’s lawmakers a blank check to raise taxes to pay for the program.
The proposal comes as hundreds of thousands of California residents escape the state for greener fields, especially to states with much lower taxes and less restrictive policies relating to the pandemic.
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California would also expand the payroll tax paid by employees who make more than $49,990 in annual income if they work for a company that has more than 50 workers. Walczak noted the plan could deter small businesses from expanding by inadvertently creating a tax cliff. For instance, if a company that had 49 workers earning $80,000 each hired one additional employee, they would suddenly create a tax bill of more than $90,000.
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Eventually, the state would also adopt a new 2.3% gross receipts tax (GRT) on qualified businesses minus the first $2 million in annual gross receipts, at a rate more than three times that of the country's current highest GRT.
Walczak noted the proposed tax increases come as California struggles from many residents relocating to red states with lower tax burdens. A separate Tax Foundation analysis based on Census Bureau data shows that California's population actually fell 0.8% in 2021, even as states with lower taxes saw their populations increase.
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