Opinion: California must not increase taxes as state faces budget deficit, economic uncertainty
After three straight years of record state budget growth, inflation and higher interest rates are bringing state finances back down to earth. The good news is prudent budgeting by state leaders has created healthy budget reserves and resisted expensive, long-term spending obligations. We are not facing a budget “crisis” — yet.
The Senate proposal would subject certain businesses to a 10.99% corporate income tax — the second-highest rate in the nation. High corporate tax rates put California companies at a tremendous competitive disadvantage. The 49 other states would benefit from California’s decision to make itself less attractive to employers.
California is competing globally to attract and retain investment and employers. Increasing the corporate tax rate when the rest of the world is reducing rates is counterproductive. It fails to recognize this trend in taxation, putting California out of step with the economies that are looking to lure California investors and jobs.
These taxes would be detrimental to California as the state fights off the prospects of an economic downturn. Voters in 2014 approved a constitutionally protected rainy-day reserve to backstop the state budget. During good times, the Legislature and the governor deposited more than $30 billion in the rainy-day reserve. One of Gov. Gavin Newsom’s strategies to address the revenue slowdown is to stop adding to the rainy-day reserves.
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