A California for all, where everyone has access to economic opportunity, affordable housing, comprehensive health care, quality education, sufficient child care, and other basic needs, is possible. Policymakers can achieve this vision by advancing fairer taxation to prevent cuts during budget shortfalls like the one we face today and address the vital long-term needs of Californians.
Despite the current budget shortfall, California is home to great wealth. Yet, due to the enduring legacies of systemic racism, sexism, and xenophobia, this wealth remains in the hands of a select few, perpetuating entrenched gender, racial, and other inequalities. To realize our collective vision for a just and equitable Golden State, policymakers must equitably tap California’s abundant resources to uplift Californians who have long been blocked from our state’s prosperity.
Policymakers Have Options to Prevent Cuts, Build a Resilient Future
California’s corporate profits have significantly outpaced the earnings of its workers over the past two decades. This stark disparity underscores the urgent need to reevaluate our approach to state corporate taxation — which remains near its lowest rate in decades — to ensure that the benefits of our state’s prosperity reach all Californians.
One option is to move to a graduated corporate tax rate, where the most profitable corporations pay a higher tax rate, just like individuals with higher incomes pay higher rates. Currently, corporate profits are highly concentrated, with a tiny share of immensely profitable and powerful corporations earning the lion’s share of profits.
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Another option to better prioritize Californians and advance fairer taxation is reevaluating our state’s costly tax breaks. Even this year, when there’s a budget shortfall, California is slated to spend billions of dollars on tax breaks. Some of the most costly primarily benefit highly profitable corporations. These tax breaks take billions of dollars out of the state budget, which could otherwise prevent cuts and allow for investment in essential services like health care, affordable housing, education, poverty reduction programs, climate resilience, and public transportation. Ineffective or highly inequitable tax breaks should be eliminated or restructured to make them more effective and equitable while reducing the cost to the state.
Highly profitable corporations should not be able to use tax credits to reduce their tax contributions to zero. Policymakers could limit the amount of taxes corporations can offset with credits in a given year. This would ensure that these large corporations make meaningful contributions to California’s vital public services, upon which their businesses and workers depend.
Policymakers also need to crack down on the use of tax havens. Changing corporate rates is not enough to ensure large, highly profitable corporations pay their fair share. Some corporations dodge taxes by pretending that some domestic profits were earned overseas in low- or zero-tax jurisdictions. Policymakers can crack down on tax dodging by eliminating what’s known as the “water’s edge” loophole.” Taking this step could potentially bring an additional $4 billion in revenues to California.
Taking steps toward tax fairness is a popular proposal. Recent polling shows that the majority of Americans are greatly concerned that some corporations are not paying their fair share in taxes, and two-thirds believe tax rates on large businesses and corporations should be raised. Similarly, annual Gallup polls across a recent 15-year period show that between 62% and 73% of Americans believe that corporations pay too little in taxes.
Beyond corporate taxes, policymakers can eliminate or restructure tax breaks that primarily benefit wealthy Californians. For example, as suggested by the Legislative Analyst’s Office, restructuring the mortgage interest deduction and eliminating it for vacation homes, and getting rid of what’s known as the “stepped-up basis” loophole, which allows people inheriting assets to avoid a large amount of taxes, would raise millions of dollars in new revenue.
As policymakers navigate a challenging budget year and work toward a California for all, it’s crucial that fair taxation and increasing revenues be part of the solution. By tapping into California’s great wealth and reallocating resources to benefit all Californians, policymakers can chart a path toward a more just and equitable Golden State — where economic opportunity, affordable housing, accessible health care, quality education, childcare, and other basic needs are within reach for every Californian.
