Counting the Cost: How Gov. Newsom’s Budget Spells Billions in Higher Taxes for Businesses in California

California Gov. Gavin Newsom reassured that his $45 billion deficit-balancing budget would not burden workers or businesses with increased taxes, stating, "I don't see a real need to raise general taxes and harm our competitiveness." However, a report from the California Taxpayers Association indicates that Newsom's plan includes indirect tax hikes on businesses, potentially costing $18 billion. The proposal also reverses a ruling benefiting companies like Microsoft, potentially leading to millions in refunds and posing a $1.3 billion immediate cost to California.

Dennis Perez May 24, 2024

Counting the Cost: How Gov. Newsom's Budget Spells Billions in Higher Taxes for Businesses in California

California Governor Gavin Newsom has made a bold pledge to tackle the state’s whopping $45 billion deficit without burdening workers or businesses with higher taxes. In a recent press conference, Newsom, a Democrat, asserted his stance against increasing general taxes, emphasizing the need to maintain the competitive edge of the state without overburdening its citizens. Despite repeated inquiries about potential tax hikes, Newsom made it clear that he stands firm in his decision to steer clear of imposing additional taxes this year or the next.

While Newsom adamantly denies any direct tax increases, a recent report by the California Taxpayers Association has shed light on potential indirect tax hikes hidden within Newsom’s revised budget plan. The report suggests that the proposed measures could result in businesses facing up to $18 billion in additional taxes over the next four years. One such measure includes banning businesses with annual revenue exceeding $1 million from deducting their net operating losses, coupled with capping business tax credits at $5 million for the tax years 2025-2027.

Furthermore, the budget proposal seeks to overturn a recent ruling by the Office of Tax Appeals that favored Microsoft in a dispute with the Franchise Tax Board over the treatment of its foreign earnings. This decision could potentially lead to a substantial refund of $94 million for Microsoft and similar windfalls for other companies operating in California, which experts estimate could amount to millions in additional costs for the state in the long run.

As Newsom grapples with one of the most significant budget shortfalls in California’s history, he has also outlined deep spending cuts that could impact crucial areas such as immigration, education, and child care for low-income parents. With the California legislature facing a looming deadline of June 15 to approve a budget, the pressure is on to strike a balance between addressing the deficit and safeguarding essential services without resorting to tax increases.

In the midst of economic uncertainty and mounting challenges, Newsom’s budget proposal underscores the complex balancing act of navigating fiscal responsibility while striving to protect the interests of Californians. As the state charts a course forward, the decisions made in the coming weeks will have far-reaching implications for businesses, residents, and the overall economic landscape of California. With the clock ticking towards the budget deadline, all eyes are on Sacramento to see how this high-stakes fiscal drama will unfold.