California’s Riddling Business Climate

As the clock struck midnight on August 31, one of the most unpredictable legislative sessions in California history came to a close. On the last day of session alone, most GOP Senators were quarantined and forced to vote by Zoom, an Assemblymember spoke on the floor while holding her baby, and Senate attempts to limit debate were met with rebukes of righteous indignation.

While California’s lawmaking form was unusual, its substance remained business-as-usual. California desperately needed legislation to assist with a crippled economy and free up overpriced housing. Instead, citizens saw their elected officials pass bills that pierced taxpayer confidentiality, forced small employers to provide burdensome protected leave, and provide a retroactive and unworkable “right of recall” for employees in certain industries. It was only three months ago the state budget increased business taxes $8.7 billion by suspending net operating loss and business incentive tax credits for three years.

Additionally, voters will face a decision in November on Proposition 15 whether to institute the largest tax increase in state history – in the amount of up to $11.5 billion, especially oppressing small business owners. Just last week, Governor Newsom endorsed Proposition 15, but also committed that he would not sign any legislation like the bills listed below.

Headcount Tax. AB 398 (Chu; D-San Jose) Punishes certain employers who create jobs and discourages hiring and employment growth by imposing a headcount tax of $275 per employee.
Unnecessary Commission to Study Tax Expenditures. SB 956 (Jackson; D-Santa Barbara) Creates an unaccountable bureaucracy to study tax expenditures, largely removing the Legislature from the debate over the value of tax incentives designed to increase jobs and investments in California. This bill will potentially increase taxes by $20 billion.
Massive Retroactive Tax Increase. AB 1253 (Santiago; D-Los Angeles) Seeks to increase California’s personal income tax rate, already the highest in the country, for struggling small businesses and high-income earners, which will result in a recently reported $6.8 billion in increased taxes.
Net Worth Tax. AB 2088 (Bonta; D-Alameda) The bill would impose a tax of 0.4% of a state resident’s worldwide net worth in excess of $30 million, or in excess of $15 million for married taxpayers filing separately.

As businesses in California continue to struggle to reopen amidst the pandemic, the voters, Legislature and Governor should limit any new tax increases or additional burdens.

Preston Young, Policy Advocate