Please ensure Javascript is enabled for purposes of website accessibility
Newsom Says No New Taxes, Yet His Budget Has Billions in New Levies on Businesses
dan_walters
By Dan Walters, CalMatters Commentary
Published 1 month ago on
May 22, 2024

Despite Gov. Newsom's public refusal to raise taxes, his revised budget subtly includes indirect tax increases on businesses that could generate up to $18 billion over the next few years. (CalMatters/Fred Greaves)

Share

Getting your Trinity Audio player ready...

When Gov. Gavin Newsom unveiled a much-revised 2024-25 state budget this month, he became visibly irritated when reporters pressed him about raising taxes to cover a $44.9 billion deficit, particularly the corporate tax hikes that left-leaning groups have suggested to avoid spending cuts in health, welfare and education programs.

Dan Walters Profile Picture
Dan Walters

CalMatters

Opinion

“When considering the 8.84 % corporate tax – which is the highest, arguably, depending on how you analyze it, in the country – no, I’m not prepared to increase taxes,” Newsom replied. “We have among the highest tax rates in the United States of America for high wage earners, we have among the highest tax rates, as I noted, for corporate taxes. … I feel strongly that we have to live within our means.”

However, the fine print of Newsom’s budget contains several indirect tax increases on businesses – mostly by reducing offsets of taxable income – that over the next few years would raise as much as $18 billion.

That number comes from the California Taxpayers Association, which pulled together tax-related items from the budget and the dozens of budget trailer bills submitted to the Legislature. It approximates the $6 billion year in income and sales taxes that Newsom’s predecessor, Jerry Brown, persuaded voters to approve in 2012 to close an earlier deficit.

This Change Would Cost Businesses $16 Billion

The biggest, in terms of financial impact, would eliminate the ability of corporations with annual revenues over $1 million to deduct net operating losses from their taxable incomes and limit business tax credits to $5 million a year. CalTax estimates it would increase corporate tax revenue by $15.9 billion over the next four years.

It would not be the first time that the state has limited or eliminated the net operating loss deduction, a history that the Legislature’s budget analyst, Gabe Petek, cited in an analysis of the maneuver.

The deduction, Petek said, “allows businesses to smooth profits and losses such that businesses with similar profits over time pay similar taxes. Without this smoothing, businesses in riskier or more innovative industries – such as the technology, motion picture, and transportation sectors – could end up paying more taxes than businesses with similar but more stable profits. As such, suspending NOL deductions would lead to a less equitable tax system.

“Should the governor’s proposal take effect, the state will have disallowed NOL deductions in nearly half of years between 2008 and 2027,” Petek continued. “At this rate, it seems reasonable to ask whether suspensions have begun to meaningfully undermine the purpose of allowing NOL deductions in the first place.”

The Microsoft Case

The second largest – and perhaps most intriguing – indirect tax increase Newsom proposes is to overturn a recent decision of the state Office of Tax Appeals favoring Microsoft in a complex, years-long dispute with the Franchise Tax Board over the tax treatment of foreign earnings.

In effect, the appeals panel declared that the Franchise Tax Board erroneously applied state law on taxing multinational corporation earnings. The FTB estimates that it could cost the state $1.3 billion in refunds immediately and hundreds of millions more in future years.

However, the administration’s trailer bill would nullify the ruling by declaring that the FTB correctly applied the law. It would be in effect retroactively and potentially allow the FTB to promulgate new regulations to enforce without going through the normal rule-making processes.

In addition to its fiscal impacts, the legislation sets a questionable precedent of retroactively changing tax laws after taxpayers have won appeals. Such ex post facto legislation undermines the integrity of the tax system.

If nothing else, Newsom’s proposals underscore again the premise that declaring who or what is taxed is an arbitrary political act, not a rational exercise.

About the Author

Dan Walters has been a journalist for nearly 60 years, spending all but a few of those years working for California newspapers. He began his professional career in 1960, at age 16, at the Humboldt Times. CalMatters is a public interest journalism venture committed to explaining how California’s state Capitol works and why it matters. For more columns by Dan Walters, go to calmatters.org/commentary.

Make Your Voice Heard

GV Wire encourages vigorous debate from people and organizations on local, state, and national issues. Submit your op-ed to bmcewen@gvwire.com for consideration.

RELATED TOPICS:

DON'T MISS

Music Record Labels Sue AI Song-Generators Suno and Udio for Copyright Infringement

DON'T MISS

California’s Self-Inflicted Fiscal Crisis Produces a Budget Full of Gimmicks and Favors

DON'T MISS

Israel’s Use of White Phosphorus in Lebanon Endangers Civilians, HRW Reports

DON'T MISS

AWOL Councilmembers Latest Twist in Polarized Parlier Politics

DON'T MISS

The Urgent Need to Blow Off Swing Voters

DON'T MISS

Today’s Teenagers Have Invented a Language That Captures the World Perfectly

DON'T MISS

Lawsuit Challenges New Louisiana Law Requiring Classrooms to Display the Ten Commandments

DON'T MISS

UN-backed Contingent of Foreign Police Arrives in Haiti as Kenya-led Force Prepares to Face Gangs

DON'T MISS

International Court Seeks Arrest of Russian Officials Over Attacks on Ukrainian Power Plants

DON'T MISS

Medical Center in Porterville Graduates First Class of Internal Medicine Residents

UP NEXT

California’s Self-Inflicted Fiscal Crisis Produces a Budget Full of Gimmicks and Favors

UP NEXT

Israel’s Use of White Phosphorus in Lebanon Endangers Civilians, HRW Reports

UP NEXT

AWOL Councilmembers Latest Twist in Polarized Parlier Politics

UP NEXT

The Urgent Need to Blow Off Swing Voters

UP NEXT

Today’s Teenagers Have Invented a Language That Captures the World Perfectly

UP NEXT

Lawsuit Challenges New Louisiana Law Requiring Classrooms to Display the Ten Commandments

UP NEXT

UN-backed Contingent of Foreign Police Arrives in Haiti as Kenya-led Force Prepares to Face Gangs

UP NEXT

International Court Seeks Arrest of Russian Officials Over Attacks on Ukrainian Power Plants

UP NEXT

Israel’s High Court Orders the Army to Draft Ultra-Orthodox Men, Rattling Netanyahu’s Government

UP NEXT

Embattled Fresno Police Chief Paco Balderrama Resigns: ‘Right Time for Me to Step Away’

AWOL Councilmembers Latest Twist in Polarized Parlier Politics

1 hour ago

The Urgent Need to Blow Off Swing Voters

2 hours ago

Today’s Teenagers Have Invented a Language That Captures the World Perfectly

2 hours ago

Lawsuit Challenges New Louisiana Law Requiring Classrooms to Display the Ten Commandments

2 hours ago

UN-backed Contingent of Foreign Police Arrives in Haiti as Kenya-led Force Prepares to Face Gangs

2 hours ago

International Court Seeks Arrest of Russian Officials Over Attacks on Ukrainian Power Plants

2 hours ago

Medical Center in Porterville Graduates First Class of Internal Medicine Residents

2 hours ago

Israel’s High Court Orders the Army to Draft Ultra-Orthodox Men, Rattling Netanyahu’s Government

2 hours ago

Which Fresno Unified High School Is Getting a Second Gym?

3 hours ago

Embattled Fresno Police Chief Paco Balderrama Resigns: ‘Right Time for Me to Step Away’

3 hours ago

Music Record Labels Sue AI Song-Generators Suno and Udio for Copyright Infringement

BOSTON — Big record companies are suing artificial intelligence song-generators Suno and Udio for copyright infringement, alleging that the ...

12 mins ago

12 mins ago

Music Record Labels Sue AI Song-Generators Suno and Udio for Copyright Infringement

17 mins ago

California’s Self-Inflicted Fiscal Crisis Produces a Budget Full of Gimmicks and Favors

54 mins ago

Israel’s Use of White Phosphorus in Lebanon Endangers Civilians, HRW Reports

1 hour ago

AWOL Councilmembers Latest Twist in Polarized Parlier Politics

2 hours ago

The Urgent Need to Blow Off Swing Voters

2 hours ago

Today’s Teenagers Have Invented a Language That Captures the World Perfectly

2 hours ago

Lawsuit Challenges New Louisiana Law Requiring Classrooms to Display the Ten Commandments

2 hours ago

UN-backed Contingent of Foreign Police Arrives in Haiti as Kenya-led Force Prepares to Face Gangs

MENU

CONNECT WITH US

Search

Send this to a friend