How High Will California’s Taxes Go Before There’s No One Left To Tax?

As the mad scientist laboratory for bad tax policy in America, California is constantly striving to come up with poorly designed and harmful taxes to pay for ever-increasing spending. But even by its own lofty standards, California has truly outdone itself with its latest proposal to fund a state single-payer health care system.

A proposed constitutional amendment, ACA 11, would accomplish the unlikely goal of making the taxes that California currently demands from its residents look restrained. Not only would the proposed $163 billion in new tax revenue nearly double last year’s total revenue for the tax-happy state, but California would structure these new taxes in such a way as to be even more harmful than doubled tax liabilities already imply.

The bill would raise the additional revenue through three taxes: a 2.3 percent gross receipts tax on business revenues (with an exemption for the first $2 million in profits), a 1.25 percent payroll tax on businesses with 50 or more employees (with an increased rate for wages paid to employees making over $49,900), and 0.5 percent to 2.5 percent increases to the personal income tax rate depending on income.

It’s hard to say which of these is the “worst,” but the 2.3 percent gross receipts tax sticks out. That gross receipts taxes are an awful way to structure a business tax is one of the few things that tax policy experts across the political spectrum almost universally agree on. That’s because they make no allowance for the large variance in profit margins that different types of businesses make—whether a business has a profit margin of 0.1 percent or 10 percent, it would still have to pay the same percentage of its total revenues. – READ MORE