Massive New CA Tax Increase Proposed

Gutting-and-amending a bill originally related to local governments in the Public Resources Code, Assembly Bill 1253 now proposes a massive tax increase on thousands of sole proprietors and high-income Californians. AB 1253 was amended on July 27, the Legislature’s first day back from its extended summer recess.

Originally authored by Assemblyman Robert Rivas when it dealt with the Strategic Growth Council, the bill is now jointly authored by eight Assembly Members: Santiago, Bonta, Carrillo, Chiu, Gonzales, Kalra, Stone, and Wicks. Assembly Members Chu, Jones-Sawyer and Ting are coauthors, while Senators Skinner, Durazo, Gonzalez, and Wiener are also coauthors.

AB 1253 would add Revenue and Taxation Code Section 17044 to create three new tax rates for amounts of income above specified thresholds. As a tax levy, it would take effect immediately upon the Governor’s signature and chaptering by the Secretary of State. The bill would apply retroactively to tax years beginning on or after January 1, 2020. As a tax increase measure, it would require a 2/3 vote of both houses of the Legislature pursuant to Article XIIIA, Section 3 of the California Constitution.

Specifically, AB 1253 would add a new section to the Revenue and Taxation Code to provide the following three higher tax rates (in addition to the existing ones):

  • A 1% tax on income above $1 million, but not over $2 million
  • A 3% tax on income over $2 million, but not over $5 million
  • A 3.5% tax on income over $5 million

These thresholds would have to be recomputed for each tax year beginning on or after January 1, 2021 based upon the California CPI.

Under existing law, the highest base rate for individuals and sole proprietors is 9.3%. There is also the “millionaire’s tax” of an additional 1% for income in excess of $1 million.

Due to a statewide ballot measure, there are four additional tax rates (above 9.3%) ending at 13.3% for incomes above specified amounts. They are 10.3% for incomes between $269,000 – $322,000; 11.3% for incomes between $322,000 – $537,000; 12.3% for incomes between $537,000 – $1 million; and, 13.3% for incomes above $1 million.

If AB 1253 were enacted, the 13.3% rate would rise to 14.3% for incomes above $1 million and the state’s highest rate would be raised to 16.8% for incomes above $5 million.

California already has the highest tax rate in the nation of 13.3 percent, while the lowest is 1 percent in Tennessee, according to the Tax Foundation. Hawaii is the second highest at 11%. The Foundation also notes that nine states have single-rate levies on individuals’ income, while 32 states have graduated-rate income taxes. Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not impose an income tax.

AB 1253 is pending a hearing in the Senate Governance and Finance Committee.

Chris Micheli is a lobbyist with Aprea & Micheli, as well as an Adjunct Professor of Law at the University of the Pacific McGeorge School of Law.

This article was originally published by California Globe.

Comments

  1. It seems that a tax increase is the answer to everything along with more regulations and the thought police. .

  2. As abhorrent as tax increases are, the State was already in deep doodoo over pensions before CoVid-19, and due to the steep drop in tax revenue from the loss of businesses in California from the shutdowns, expect California will look to every conceivable source of revenue increasing. This will also include abolishing Prop 13, and given the political climate I’m not sure Prop 13 can survive a new vote. And as soon as the State realizes how little money they will get from the new taxes on millionaires, they will increase the taxes on people with incomes over $75,000 as well.

    • What everyone needs to know is that CA currently receives OVER $65 BILLION in property tax revenues! Plenty of money coming in – $5.75 TRILLION back in the 2017-18 tax year! Sacramento needs to live on a budget, like CA citizens do!

  3. They sure like driving the productive people out of state, don’t they……

  4. CA_death_spiral says

    I can’t get out of this state fast enough

  5. Sell and move while you can! My house is worth less than what I paid for it. I have lived my whole life in California and I’m not eager to move, but this will be the last straw.

  6. FYI, the last remaining Tennessee income tax on dividends is set to expire in 2023. My favorite California refugee state.

  7. https://riderrants.blogspot.com/2020/08/im-lifetime-tax-fighter-yet-i-support.html

    I’m a lifetime tax fighter. Yet I support the proposed CA 16.8% income tax on the rich.
    by Richard Rider

    My credentials as a California tax fighter are well established. I joined the battle in 1978, supporting Prop 13. As an unpaid volunteer, I’ve been at it ever since. My efforts have saved Californians over 20 BILLION dollars in taxes.

    Yet I now strongly support the proposed (7/20) California state legislature’s massive, RETROACTIVE state income tax increase on the wealthy. In California, it will be a tax that in essence targets the liberal rich. Karma.

    If passed by the current Democrat super-majorities in both state houses and signed by Governor Newsom before the end of August, this tax will apply to income received by rich folks SINCE THE FIRST OF THE YEAR.

    Retroactive tax increases are the way we roll in Taxifornia. Don’t ask me how that is legal — they got away with it in their massive retroactive 2012 tax increase — and it wasn’t approved by (clueless) California voters until November of that year.

    Currently California ALREADY has the highest state income tax rate in the nation — 13.3% on income above $1,000,000. CA is 21% higher than 2nd place Hawaii, and a heck of a lot higher than all the rest.

    The new rates will levy an additional 1% levy on adjusted gross income starting at $1 million. That rate would increase to 3% starting at $2 million and go to 3.5% on incomes above $5 million. That would make our top income tax rate 16.8% for the rich.

    But that’s not all. CA taxes capital gains (CG) as ordinary income. Currently our CA combined federal and state long term CG tax is the second highest in the world! Assuming Biden wins and the Democrats control the U.S. senate, the federal capital gains rate is expected to rise 80% or more, making our combined California CG rate over 50% — leaving socialist Denmark far behind.

    If I lived in TX (and all but the most liberal states), I would oppose the tax. There the rich are not all limousine liberals.

    But this is La La Land — where the rich OVERWHELMING support progressives. Let those rich folks pay for the California Workers’ Paradise that they are voting for. For those few wealthy individuals who are NOT progressives, their option is obvious — flee California ASAP. I’m confident that the majority of the fleeing CA rich will be the two-faced progressives who (like everyone else) feel that they better know how to spend their own money than does the government.

    The premise of those politicians pushing this bill is that the rich will pay any amount of tax to live and work here. Their anticipated $6.8 billion increase in annual tax revenue is predicated on the supposition that no rich people will leave the Golden State. I think that the rich will still VACATION in California for several months (less than six full months) of the year, but their tax residence will be in a much lower income tax state.

    But maybe the Democrat politicians are right! Indeed, if the tax works as progressives envision, Sacramento should impose another “soak the rich” tax increase next year. I’m “all in” with that plan!

    Let’s find out if the wealthy progressives are really as dumb as they appear. Let’s eat the rich.

  8. Alan Scott says

    California’s only problem has been run the last 40++ years by the dems who are well known for one issue; if it feels good – pass it, regardless of any vetting by experts.

    CA passes on average 900-1,000 pieces of legislation, regulations, and the neatest one FEES!!! At least 90 or more percent of created legislation is to fix a previous dufus issue.

    No one in the executive, judicial, or legislative branches has a clue of what they have done; hence, they select the only solution available, just pile on without performing a compliance review to ensure they are not walking over existing garbage, as CA has cornered the market in this arena an easy example banning straws!!!

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