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Newsom Proposes $18B In New Business Taxes Despite Pledging No Increases

California Gov. Gavin Newsom speaks during a Clean California event in San Francisco, Thursday, Nov. 9, 2023. (AP Photo/Jeff Chiu)

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.

Earlier this month, the governor repeatedly pledged he would not raise taxes to solve the budget crisis—which comes just two years after he boasted a nearly $100 billion surplus—telling reporters that “the answer is no,” should Democratic lawmakers bring him tax hike proposals, and that “there’s only so many times I can say no to the tax question.”

“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.

State finance department spokesman H.D. Palmer said the proposals are “designed to protect small businesses” and said the administration projects they will hit a small percentage of corporations, and the tax credit limits especially will primarily affect research and development. He also disputed the framing of the policies as temporary tax increases, saying they are “fundamentally different in structure.”

Yet critics are blasting the move as tax increases, regardless of the governor’s framing. David Kline, vice president of communications and research for the California Taxpayers Association, said adding these taxes will only make California’s already beleaguered economy worse.

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