California would increase taxes by $12,250 per household, roughly doubling the state’s already high tax collections, to fund a first-in-the-nation single-payer health-care system. The top marginal rate on wage income would soar to 18.05 percent—nationally, the median top marginal rate is 5.3 percent—and the state would adopt a new 2.3 percent gross receipts tax (GRT), at a rate more than three times that of the country’s highest current pure GRT.
All told, the new tax package is intended to raise an additional $163 billion per year, which is more than California raised in total tax revenue any year prior to the pandemic.
The new taxes would take three forms:
- Surtaxes atop the current individual income tax structure beginning at $149,509 in income;
- A graduated-rate payroll tax system with the top rate kicking in for employees with more than $49,990 in annual income; and
- A gross receipts tax of 2.3 percent, excluding the first $2 million of business income.
Two states currently have payroll taxes for purposes other than funding their unemployment insurance system. In Massachusetts, a recently adopted payroll tax of 0.68 percent is imposed atop the state’s 5.0 percent flat individual income tax. In Nevada, there is a payroll tax of 1.475 percent in lieu of any individual income tax. California would impose a payroll tax of up to 2.25 percent atop an individual income tax that already has a top marginal rate of 13.3 percent.
Similarly, several states have gross receipts taxes in lieu of corporate income taxes. In Ohio, for instance, there is a 0.26 percent gross receipts tax, adopted to replace the state’s corporate income tax, capital stock tax, and business tangible property tax. In California, by contrast, a 2.3 percent gross receipts tax—almost nine times Ohio’s rate—would be imposed in addition to tangible property taxes and an 8.84 percent corporate income tax, and an aggressive one at that, the only state-level corporate income tax in the country with a worldwide tax base.
