California Gov. Newsom's Budget Could Cost Businesses Billions In Higher Taxes

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Newsom shuns tax hikes. His budget tells a different story | Opinion

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.

"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."

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Newsom Said He Wouldn't Raise Taxes To Fix California's Deficit.

California governor Gavin Newsom (D.) told reporters earlier this month he wouldn't raise taxes to fix the state's $73 billion budget hole, but buried in his latest budget proposal are $18 billion in temporary tax hikes for businesses.

"I don't see there's real evidence and need right now to increase general taxes … in this state and put more burden on working folks and our competitive posture," he told one reporter who asked him if tax hikes were an "absolute nonstarter" for him.

Newsom unveiled his budget proposal on May 10, and the tax policy details the following week. The proposal would, for the next three years, bar businesses earning $1 million or more from deducting operating losses from their taxes while also limiting business tax credits. The provisions are projected to cost California businesses about $18 billion through 2027, although they wouldn't take effect if tax collections beat expectations. Such a scenario appears unlikely, however, given that California's tax revenues are massively down thanks to a stagnating economy and exodus of both high-earning residents and businesses.

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California Gov. Gavin Newsom pledged that his budget proposal to balance the state's ballooning $45 billion deficit would not include higher taxes on workers or businesses.⁘

Yet a new report published by the California Taxpayers Association (CalTax), a nonpartisan and nonprofit tax research group, suggests Newsom's revised budget plan actually contains several indirect tax increases on businesses that could cost as much as $18 billion over the next four years.⁘

California Gov. Gavin Newsom attends an event with fellow governors in the East Room of the White House in Washington, D.C., on Feb. 23. (Chip Somodevilla/Getty Images / Getty Images)

Newsom called for banning businesses with annual revenue over $1 million from deducting their net operating losses and limiting usage of business tax credits to $5 million for the 2025, 2026 and 2027 tax years.⁘

The proposal also calls for reversing a recent ruling by the Office of Tax Appeals (OTA) regarding the treatment of repatriated income. OTA ultimately sided with Microsoft in its long-running dispute with the Franchise Tax Board (FTB) over the treatment of its foreign earnings. Microsoft was awarded a $94 million refund ⁘ a ⁘significant⁘ decision that tax experts said could bring in millions of dollars for companies that do business in California.⁘

A view of Avalon Boulevard in South Los Angeles. (Myung J. Chun / Los Angeles Times via Getty Images / Getty Images)