The share of California corporate income paid in state taxes declined by more than half during the past three decades. In the early 1980s, corporations that reported profits in California paid more than 9.5% of this income in state corporation taxes. In contrast, corporations paid just 4.2% of their California profits in corporation taxes in 2017, the most recent year for which data are available. California’s state budget would have received $11.2 billion more revenue in 2017 had corporations paid the same share of their income in taxes that year as they did in 1981 – more than the state spends on the University of California, the California State University, and student aid combined. Corporations pay less of their income in taxes today – even amid the COVID-19 economic crisis – than they did in the 1980s in part due to the reduction of tax rates by state policymakers.
Taxes represent our shared effort to support vital public services and systems all Californians need that underpin a robust economy and strong communities. The Budget Center works to highlight the importance of having a tax system that not only provides a strong safety net but also asks individuals, families, businesses, and other organizations to contribute based on their economic ability.
California loses a large amount of state revenues through tax breaks, also called “tax expenditures,” with much of the benefits going to high-income households and corporations. Personal income and corporate income tax expenditures combined are projected to amount to more than $63 billion in forgone state revenues in 2019-20 (the fiscal year that started on July 1, 2019), or an amount equivalent to more than 40% of the 2019-20 General Fund budget. This is revenue that otherwise could go to Californians who need additional support to be able to live and work in the state while strengthening the state’s economy.
In the next few weeks, state policymakers will decide whether to expand California’s Earned Income Tax Credit (CalEITC) — a refundable state tax credit that boosts the incomes of families and individuals who earn little from their jobs. Governor Newsom’s revised budget proposes to expand the credit beyond what he proposed in January, as we explain in our analysis of the May Revision. (For details on the Governor’s January proposal, see our chartbook.) Now all eyes turn to the Assembly and Senate budget committees, » Read more about: Expanding the CalEITC Is an Effective Way to Invest in California’s Children, But Hundreds of Thousands of Children of Immigrants Won’t Benefit Unless Policymakers Act »
This “First Look” analysis examines Governor Newsom’s revised state budget proposal for 2019-20, the state fiscal year beginning on July 1, 2019, and highlights the ways it could impact low- and middle-income Californians.
When Governor Gavin Newsom released his proposed 2019-20 budget this past January, one of the biggest surprises was that he did not include a proposal to extend California’s tax on health insurance plans — or “managed care organizations” (MCOs) — which expires on July 1. (An extension of this tax would require federal approval.) The Governor’s position is puzzling because the MCO tax package generates a net state General Fund benefit of roughly $1.5 billion each year. » Read more about: Five Key Facts About California’s Soon-to-Expire “MCO Tax” »