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Calling California home means sharing in the responsibility of creating strong communities. Yet, corporations are contributing roughly half as much of their California profits in state taxes than four decades ago. 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 4.8% of their California profits in corporation taxes in 2019, the most recent year data are available. California’s budget would have received $14 billion more revenue in 2019 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 than the 1980s in part due to tax rate reductions by state policymakers. The Legislature has cut the corporate tax rate twice: from 9.6% to 9.3% in 1987 and from 9.3% to 8.84%, its current level, in 1997.

In addition to cutting tax rates, state policymakers have enacted several tax breaks that reduce the share of corporate income paid in California corporation taxes. In the 1980s, policymakers established the “water’s edge” election and the research and development (R&D) tax credit — the state’s two largest corporate tax breaks that account for $6.1 billion of the $7.8 billion the state is projected to spend on corporate tax expenditures in 2021-22.

$14 Billion

California’s budget would have received $14 billion more in 2019 had corporations paid the same share of their income in taxes as they did in the 1980s.

California’s tax break spending for corporations far exceeds tax benefits for Californians with low incomes. In tax year 2020, California spent $1.3 billion on the state’s two largest tax credits targeted to Californians with low incomes — the California Earned Income Tax Credit (CalEITC) and the Young Child Tax Credit (YCTC).1Reflects credits from tax returns processed by the Franchise Tax Board through November 27, 2021. The CalEITC and YCTC benefited 6.6 million Californians in tax year 2020 by boosting the incomes of those with annual earnings of less than $30,000, a large majority of whom are people of color.2The 6.6 million Californians figure reflects the total number of tax filers, spouses, and dependents in 4.2 million “tax units.” Yet, most people get less than $200 from the CalEITC, far too little to help people earning low wages and living in poverty. Policymakers can make tax credits more equitable by providing a larger minimum CalEITC for eligible workers and pay for it by eliminating or reducing tax breaks for corporations that can afford to contribute more to support California communities.

  • 1
    Reflects credits from tax returns processed by the Franchise Tax Board through November 27, 2021.
  • 2
    The 6.6 million Californians figure reflects the total number of tax filers, spouses, and dependents in 4.2 million “tax units.”

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California will lose an estimated $69.2 billion in state General Fund revenues in 2021-22 to personal and corporate income tax breaks — or “tax expenditures.”1Department of Finance, Tax Expenditure Report 2021-22, 5, https://www.dof.ca.gov/Forecasting/Economics/Tax_Expenditure_ Reports/documents/2021-22%20Tax%20Expenditure%20Report.pdf. Many of the state’s largest tax breaks primarily benefit higher-income households and businesses, while just a fraction of the state’s tax breaks are targeted to Californians with low and middle incomes.2For a more detailed examination of California’s tax expenditures, see Kayla Kitson, Tax Breaks: California’s $60 Billion Loss (California Budget & Policy Center, January 2020), https://calbudgetcenter.org/resources/tax-breaks-californias-60-billion-loss/. This revenue loss equals approximately one-third of the state’s 2021-22 General Fund budget and represents dollars the state could otherwise use to support Californians to live, work, and thrive across the state.

The state will forgo more than $18 billion in revenue due to just four itemized deductions that mostly benefit higher-income households and three tax incentives for businesses and investors. In comparison, California will spend less than $1.5 billion on tax breaks that primarily benefit low- and middle-income households, including the California Earned Income Tax Credit (CalEITC), the Young Child Tax Credit, the Renter’s Credit, the Student Loan Interest Deduction, and the Child and Dependent Care Credit.

Some of California’s tax expenditures also widen racial income and wealth disparities.

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See our 5Facts: California’s Tax & Revenue System Isn’t Fair for All to learn how elements of California’s tax and revenue system further or impede the goals of economic and racial equity for households, communities, and the state.

Some of California’s tax expenditures also widen racial income and wealth disparities. Since Black and Latinx households are underrepresented in higher-income groups due to legacies of racist policies and ongoing discrimination, these households benefit less than white households from tax breaks skewed toward richer households. Additionally, many tax breaks reward wealth-building activities such as homeownership and retirement savings, to which households of color have less access.

When policymakers choose to spend public dollars via tax expenditures that largely benefit wealthy Californians and businesses, they are also choosing not to spend those dollars to help individuals and families who struggle with the costs of housing, child care, education, and other necessities. Eliminating or scaling back these tax expenditures would free up revenue that could be used to invest in resources that broaden economic security and create wealth and opportunity for more Californians.

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Consistent access to health care is necessary for everyone to be healthy and thrive. During the pandemic, millions of Californians with low incomes have been able to keep their Medi-Cal coverage without administrative renewals and regardless of changes to their income. This is because of a temporary “continuous coverage” federal provision.1A provision in the federal Families First Coronavirus Response Act prohibits states from disenrolling Medicaid beneficiaries during the federally declared Public Health Emergency (PHE). The PHE will expire on April 16, 2022 unless the US Secretary of Health and Human Services Secretary extends it again. Despite ongoing hardships due to the pandemic, this federal provision may expire soon, which would disrupt health coverage for many.

Continuous health coverage allows children to receive preventive and primary care
services, which is crucial for very young children. Children who face housing insecurity are particularly vulnerable to losing coverage. When families move, double up with other households, or fall into homelessness, they may not receive timely information or submit paperwork required to maintain coverage, and they could lose continuity of care. About 6 in 10 children under age 5 who are income-eligible for Medi-Cal live in households that pay an unaffordable amount toward housing, placing them at risk of unstable housing and making continuous coverage critical.

State policymakers should provide continuous coverage for children on Medi-Cal until at least their fifth birthday.

The loss of continuous health coverage will particularly affect Latinx children in California.
Latinx children make up about 2 in 3 (66%) young children who are income-eligible for
Medi-Cal and live in households that pay an unaffordable amount of their income toward
housing, exposing the damaging effects of racism.

State policymakers should provide continuous coverage for children on Medi-Cal until at
least their fifth birthday. Every child should have the resources and opportunity to grow up
healthy and thrive.

  • 1
    A provision in the federal Families First Coronavirus Response Act prohibits states from disenrolling Medicaid beneficiaries during the federally declared Public Health Emergency (PHE). The PHE will expire on April 16, 2022 unless the US Secretary of Health and Human Services Secretary extends it again.

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Everyone should have the opportunity to be healthy and thrive, regardless of their race, gender identity, sexual orientation, income, or zip code. The California Department of Public Health as well as local public health departments play a critical role in protecting and promoting Californians’ health and well-being.1State departments other than the Department of Public Health often contribute to efforts to protect and promote public health. For example, the Department of Toxic Substances Control protects Californians from toxic substances. This analysis excludes such expenditures. Their core functions include infectious disease control, chronic disease prevention, health promotion, and more. Yet despite these important responsibilities, funding has not kept pace with the cost of preparing for and responding to ongoing and emerging health threats that endanger Californians.

State public health spending was generally stagnant or declining prior to the COVID-19 pandemic – leaving Californians vulnerable. Spending only recently increased largely due to the pandemic. Due to chronic underfunding of public health systems, counties and cities across the state were not adequately prepared to respond to COVID-19 and many Californians suffered as a result. The virus disproportionately impacted Black and brown communities, exposing the damaging effects of racism in California.

The California Department of Public Health as well as local public health departments play a critical role in protecting and promoting Californians’ health and well-being.

The governor’s proposed 2022-23 budget includes a new investment of $300 million for public health infrastructure at the state and local level, which would support workforce expansion, data collection, and more.2Department of Finance, Governor’s Budget Summary 2022-23 (January 10, 2022), 132-134, https://www.ebudget.ca.gov/2022-23/pdf/BudgetSummary/FullBudgetSummary.pdf. The budget also includes $235 million for state-level disease surveillance and IT operations. This commitment is a critical first step in reversing the chronic underfunding of public health systems and ensuring that Californians, especially communities of color, don’t bear the costs of an unprepared state.

  • 1
    State departments other than the Department of Public Health often contribute to efforts to protect and promote public health. For example, the Department of Toxic Substances Control protects Californians from toxic substances. This analysis excludes such expenditures.
  • 2
    Department of Finance, Governor’s Budget Summary 2022-23 (January 10, 2022), 132-134, https://www.ebudget.ca.gov/2022-23/pdf/BudgetSummary/FullBudgetSummary.pdf.

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