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California Constitutional Amendment Seeks 18% Top Tax Rate For Universal Medicare

Tyler Durden's Photo
by Tyler Durden
Tuesday, Jan 18, 2022 - 10:10 PM

Authored by Mike Shedlock via MishTalk.com,

The constitutional amendment would create a comprehensive universal single-payer health care coverage for everyone in the state...

Free Health Care is a Right   

The Assembly Constitutional Amendment ACA 11 proposal declares "Comprehensive health care coverage for every resident of California is a right" and seeks major tax hike to pay for it. 

The Tax Foundation does a Tax Analysis of the proposal. 

A proposed constitutional amendment (ACA 11) in California would increase taxes by $12,250 per household, roughly doubling the state’s already high tax collections, to fund a first-in-the-nation single-payer health-care system. The top marginal rate on wage income would soar to 18.05 percent—nationally, the median top marginal rate is 5.3 percent—and the state would adopt a new 2.3 percent gross receipts tax (GRT), at a rate more than three times that of the country’s highest current pure GRT. 

All told, the new tax package is intended to raise an additional $163 billion per year, which is more than California raised in total tax revenue any year prior to the pandemic.

These taxes, moreover, could be increased by simple majorities in the legislature, as the bill exempts the three new taxes from the constitution’s supermajority requirements for tax increases. If a future legislature decides that doubling the state’s tax collections was insufficient, the constitution’s supermajority requirement would not stand in its way. And while the new surtaxes are inflation-indexed (the payroll tax’s second bracket is not), the legislature is authorized to suspend inflation indexing at any time, which would lead to the particularly curious case of inflation-indexing the standard income tax brackets but not the surtax brackets.

New Tax Hikes 

  1. Surtaxes atop the current individual income tax structure beginning at $149,509 in income;

  2. A graduated-rate payroll tax system with the top rate kicking in for employees with more than $49,990 in annual income; and

  3. A gross receipts tax of 2.3 percent, excluding the first $2 million of business income.

And while 16 states either implemented or enacted individual or corporate income tax cuts in 2021, and more are looking to join them in 2022, California policymakers want voters to approve five new surtaxes, with a top rate of 2.5 percent atop the current 13.3 percent top marginal income tax rate and the proposed new 2.25 percent payroll tax, for a combined top marginal rate of 18.05 percent. This is more than 7 percentage points higher than the next-highest rates in Hawaii (11 percent), New York (10.9 percent), and New Jersey and the District of Columbia (both at 10.75 percent).

Issues with the proposal abound.

For instance, the payroll tax exempts employers with fewer than 50 resident employees, punishing small businesses for expanding and creating a meaningful tax cliff. Imagine, for instance, the overly simplified hypothetical of a company with 49 employees making $80,000 each. At 49 employees, the company has no payroll tax burden. Hiring one additional employee generates a tax bill of $90,000—more than that employee’s salary!

Grand Experiment

I highly doubt that even California residents are silly enough to vote for this, but who knows. 

Since it only impacts those who live and work in California, perhaps every outsider should root for this knowing full well it will backfire instantly causing a mad scramble to undo the Constitutional Amendment.

Passage is what the Progressive lunatics deserve, but the amendment affects innocent parties, not just the lunatics.

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