As the Tax Cuts and Jobs Act benefits continue to climb for business, California legislature has made a move to tax corporations that earn more than $1 million.
Two Democratic members of the California State Assembly–Assemblyman Kevin McCarty and Assemblyman Phil Ting–have introduced an amendment to the state constitution that would create a “windfall” tax surcharge on high-earning corporations, according to Robb Mandelbaum, a contributor for Forbes.
According to the Forbes article, the money would go into a newly created “Middle Class Fiscal Relief Fund”. This would pay for tax relief and other projects to benefit low- and moderate-income communities. According to the Los Angeles Times, the state tax hike would cover the equivalence to half of what was received from the federal tax cut.
The amendment–Assembly Constitutional Amendment 22–would apply to standard corporations and S-corporations, a type of pass-through entity. It would not affect other pass-through entities like limited liability companies or partnerships. Forbes attributed this information to Assemblyman Kevin McCarty’s Chief of Staff Terry Schnaz.
ACA 22 would add a 10 percent surcharge on net earnings of more than $1 million to those standard and S-corporations. To pass, the proposed amendment would need supermajority support from both houses of the legislature and a voted approval in the November 2018 ballot.
Local businesses have not supported the measure.
“What we’re hearing right now is, in an election year, every elected official is nervous about taking on an issue that could offend their constituents,” John Kabateck, NFIB California state director was quoted as saying in Forbes. “This policy is another classic example of how out of touch and insensitive state politicians are to the challenges on Main Street.”
Kabateck added, “the California legislature is always an ocean of unpredictability, so it’s very difficult to ever predict what the outcomes will be.”
ACA 22 could be for a vote by June 1. According to Mandelbaum, the state senate is also considering a bill that would allow Californians to donate all their taxes above the new $10,000 limit to a charity set up by the state. Taxpayers would be allowed to take a charitable deduction for the excess.
