California weighing proposal that could double its taxes

The bill could increase taxes by roughly $12,250 per household

By Megan Henney FOXBusiness

U-Haul Vice President Stuart Shoen argues that last year’s ‘mass outflow’ of people from California led to the most significant ‘inability for us to meet our customer demand.’
California lawmakers unveiled a new bill at the beginning of the year that would establish a single-payer health care system – an ambitious plan that would be funded by nearly doubling the state’s already-high taxes.

A new analysis from the Tax Foundation, a non-partisan group that generally advocates for lower taxes, found that the proposed constitutional amendment would increase taxes by roughly $12,250 per household in order to fund the first-of-its-kind health care system. In all, the tax increases are designed to raise an additional $163 billion per year, which is more than California raised in total tax revenue any year before the pandemic.

The proposal includes three main revenue raisers, according to Jared Walczak, a fellow at the Tax Foundation: Higher income taxes on wealthy Americans, a payroll tax on certain employees’ wages for large companies, and a new gross receipts tax.

California Gov. Gavin Newsom leaves a news conference in Sacramento, California, on Jan. 10, 2022. (AP Photo/Rich Pedroncelli / AP Newsroom)
Under the bill, the top marginal rate on wage income would soar to 18.05% – well above the median top marginal rate of 5.3% and the state’s existing rate of 12.3%. There would be an 18-bracket system, with higher taxes kicking in for individuals earning more than $149,509.The highest rate would apply to those who earn more than $2,484,121.

Here’s a closer look at how the tax system would be structured, based on individual income:

2.25%: $0
3.25%: $9,324
5.25%: $22,106
7.25%: 34,891
9.25%: $48,434
10.25%: $49,900
11.55%: $61,213
12.05%: $299,509
12.55%: $299,509
13.05%: N/A (for married couples, this applies to income of $599,013)
13.55%: $312,865
14.05%: N/A (for married couples, this applies to income of $625,371)
14.55%: $375,220
15.05%: $599,013
16.05%: $625,368
17.05%: $1,000,000
17.30%: $1,299,500
18.05%: $2,484,121

California would also expand the payroll tax paid by employees who earn 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.

Finally, 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 grapples with a high number of residents who are leaving for red states with lower tax burdens. A separate Tax Foundation analysis based on Census Bureau data shows that California’s population actually declined 0.8% in 2021, even as states with lower taxes saw their populations increase.

“Practically doubling state taxes—even if the burden is partially offset through state-provided health coverage—could send taxpayers racing for the exits,” Walczak wrote.

The taxes would fund government-run health care for all Californians, which supporters say would offset the costs of higher taxes and would save money in the long run.

Gov. Gavin Newsom, a Democrat, has said that he supports single-payer health care in the past, although he has not commented on this specific proposal. The Assembly Bill 1400 was sponsored by Assemblyman Ash Kalra.