California weighing proposal that could double its taxes

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.

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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.

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.

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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.