Should Last Summer’s Business Tax Hikes Be Curtailed?

Photo by Scott Graham on Unsplash

Last June, the California Legislature passed the Governor’s proposals from his May Revise to raise $9 billion over three years by retroactively suspending the use of net operating losses (NOLs) for individuals and businesses, as well as retroactively capping the use of business tax credits. AB 85 (Budget Committee, Chapter 8), among its numerous provisions, provides:

  • For each taxable year beginning on or before January 1, 2020 and before January 1, 2023, the total credits otherwise allowable under the personal and corporate tax laws, with a few specified exceptions, may not reduce the taxes imposed by those laws by more than $5 million. The law provides that the amount of any credit that is not allowed due to the application of this law will remain a credit carryover amount. This provision was estimated to raise $2 billion in the fiscal year.
  • For each taxable year beginning on or after January 1, 2020 and before January 1, 2023, subject to certain exceptions related to a taxpayer’s income, the disallowance of a net operating loss deduction. The law extends the carryover period for a net operating loss deduction disallowed by this law. This provision was estimated to raise $1.8 billion in the fiscal year.

AB 85 was the revenues budget trailer bill within the overall 2020-21 budget package that was enacted just seven months ago. At that time, a $54 billion budget deficit was projected, despite acknowledgement of the job loss and business closing due to the pandemic in this state. At the time, the business community also argued for AB 85 to only apply for two tax years, as had been the case the prior two instances when the state took similar actions.

Fast forward to January 8 and Governor Newsom announced that the state budget anticipates a $4.6 billion increase in total revenue compared to the 2020-21 fiscal year, including a 5 percent increase in personal income tax revenue, as well as over 4% increase in local property tax revenues. Moreover, total state reserves are projected to be $22 billion. This surge of revenues to the General Fund raises the question whether the second two years, or at least the third year, of these NOL suspensions and tax credit limitations should be repealed.

At the very least, no further tax increases are warranted for the foreseeable future. California already has the country’s highest personal income tax rate and the highest base sales tax rate. With a record exodus of businesses and citizens from this state, and such a high cost-of-living, we should not only reject any calls for higher taxes, but also the Legislature should not introduce such legislation during the 2021 Session as such measures will send a chilling message to businesses and economic development efforts in California.

This article was originally published by the California Globe.

Comments

  1. As the Democrat Dictatorship continues to drag down business in California more will leave.

    As the Tax base continues to erode it is folly and stupid triple down on what forces prices to rise, and business to fail!

    As the Marxist base of the vast majority of the Democrats in California is exposed it becomes clear NONE of the Democrat leadership in the State understand real world business.

    So the question becomes are you still going to vote for losers? After all only losers will vote for destroying middle class business and the working poor that the capitalist base allows to have upward mobility.

  2. What the democratic leadership understands is the destruction of the middle class. Taxes are only one of the strategies being used. If this continues there will, in the near future, be very little middle class left – only the major corporations, the very wealthy and the controllers who will rule over the masses left – who rarely fight back. Those are the sheep of the future.

  3. The book 1984 written by George Orwell gave a clear picture what California will soon become, the ruling class and lower class. If people don’t wake up and see this, the lower class will continue to be sheeps.

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