Californians are told almost daily that Sacramento understands the state’s affordability crisis. Lawmakers hold hearings about it. The gubernatorial candidates are campaigning on it. Gov. Gavin Newsom promises to fix it.
Then, when budget season arrives, Sacramento does what it always does: make California more expensive.
State lawmakers just approved two tax increases – one of which has been pegged as among the largest taxes in state history – that will raise costs on health insurance and make the software needed to run small businesses more expensive.
The cost of a median home in California is the highest in the nation. The state and local governments’ total tax take is more than 2 percentage points beyond the national average. Commercial electricity costs in the Golden State, which include residential power, are twice as high as the U.S. average, and almost three times the rate in Texas. No state has higher gas prices.
Families aren’t asking Sacramento for new taxes. They’re asking why life keeps getting more expensive.
These problems are not the product of a free-market system gone awry or just plain bad luck but public policies that corrupt market mechanisms. Rather than getting relief from those millstones, Californians are getting more of the same in the form of major tax increases.
One will raise the tax on healthcare insurance plans. Senate Bill 125 hikes the tax on private health insurance plans to $8.85 a month per enrollee while decreasing the tax levied on Medi-Cal insurance coverage. This comes after voters approved Proposition 35, which limited the Managed Care Organization tax to $2.50 a month per enrollee.
Supporters portray the plan as a way to help balance the budget and support Medi-Cal.
But taxes don’t stay on insurance companies’ balance sheets. These costs will be passed on to Californians who rely on private health insurance for their medical care. The California Association of Health Plans estimates the tax increase could raise premiums by more than $400 a year for working families.
It will also take a bite out of small businesses. Michael Hedges, president of the California Small Business Association and small-business owner himself, says that new tax will leave small employers with “brutal” choices as “premiums jump.” They may have to “drop coverage, cut hours, freeze hiring, or raise prices on the customers who can least afford it.”
The second tax increase may sound obscure, but its effects will be widespread.
California will begin taxing many digital software services that businesses rely on every day and which have historically been considered nontaxable under Senate Bill 122. Think accounting software, customer management tolls, payroll systems, and countless other digital products that have become essential to commerce.
Under the bill, state and local sales taxes (which exceed 10% combined in some cities) would be imposed on software purchases starting Jan. 1.
Consumers will feel the pinch as higher costs are passed down to them.
The California Taxpayers Association says together the twin tax hikes would be the largest “in state history from a dollar standpoint,” Sacramento’s ABC10 reports. This is unconscionable in a state with one of the heaviest tax burdens in nation — 11th, according to WalletHub.
Every new tax, fee, mandate, or regulation handed down by Sacramento adds another brick to the wall separating Californians from the middle-class life they are trying to build.
Californians don’t need more speeches from elected officials about affordability. They need policymakers willing to stop driving up the cost of living.
These two tax increases suggest Sacramento still hasn’t gotten the message.
Kerry Jackson is the William Clement Fellow in California Reform at the Pacific Research Institute.