The price of living in California is going up. It is already one of the most expensive states to live in the U.S., ranking third behind Hawaii and the District of Columbia. It has notoriously high housing and transportation costs. But when it comes to state income taxes, California is second to none. With a leading state income tax rate of 13.3%, it rises above even Hawaii.
That’s about to get worse, according to The Wall Street Journal editorial board. Although single-payer healthcare has been relegated to the back burner for now by the White House, the governor of California is anxious to push it through his Democrat-controlled legislature. It passed the Senate in 2017, but collapsed in the more conservative Assembly because it didn’t include funding to pay for its estimated $400 billion annual cost. It also would have required Medicare and Medicaid waivers from the Trump Administration Health and Human Services Department, which was unlikely.
But now progressives are adding gargantuan tax increases to pay for this debacle. Their revived legislation would replace Medicare, Medicaid, and private health insurance with a state-run system and eliminate co-pays, deductibles, and premiums. Californians would also be entitled to an expansive list of benefits including vision, dental, hearing, and long-term care. That ought to swell the ranks of the illegal immigrants crossing the southern border.
If this sounds too good to be true, that’s because it is. Like all socialized medicine systems, a board of bureaucrats would be responsible for controlling costs. (They called this the Independent Payment Advisory Board (IPAB) in the original ObamaCare legislation.) WSJ says, “The simple truth is their job is to ration care. Deliberations about rationing decisions would be concealed from the public. The legislation “imposes a limitation on the public’s right of access to the meetings of public bodies” in order to “protect private, confidential, and proprietary information.” While Californians would technically be entitled to a “free” knee replacement, they might not get one if bureaucrats consider them too old – but the state won’t let people know that’s the reason.”
The bill would also effectively ban private insurance for benefits covered by the state – basically everything besides cosmetic surgery – which most insurance doesn’t cover anyway. This could lead to medical tourism in nearby states such as Arizona.
The state would still need those waivers from the White House for HHS, but this is unlikely to be a problem with the current administration. Progressives have been pushing for such changes to our national healthcare system since Vermont Senator Bernie Sanders introduced similar legislation called Medicare for All. Furthermore, the current HHS Secretary is none other than Xavier Becerra, former Congressman from California, who has supported single-payer healthcare in Congress.
How much would taxes increase?
WSJ says they start with a 2.3% excise tax on business with more than $2 million in gross receipts for what the legislation calls “the privilege of doing business in this state.” This gross receipts tax, which would apply to revenues rather than profits, would punish low-margin businesses large and small. Many will take their privilege elsewhere. (Just another reason for Californians to leave the state as has been happening frequently. In a recent post, The Blue States Exodus, I reported that California leads the nation in emigration of its residents.)
Employers with 50 or more workers would also pay a 1.25% payroll tax, (on top of current payroll taxes) which would be passed onto workers. Workers earning more than $49,900 would pay an additional 1% payroll tax. These taxes would raise the effective income tax on wage earners making more than $61,213 to 11.55%, more than millionaires pay in every state except New York.
An additional progressive surtax would start at 0.5% on income over $149,509 and rise to 2.5% at $2,484,121. Couples making more than $299,509 would pay a top rate of 12.55%. The top marginal rate would rise to 15.8% on unearned income, including capital gains, and 18.05% on wage income.
If you think you can escape these taxes by spending most of your time in another state, think again. This surtax would apply “as if the resident were a resident of this state for the entire taxable year,” which suggests that part-time residents would be soaked even if they spend most of the year in Florida or Texas. Reminds one of Hotel California – where you can always check in but never check out.
Not to be undone by the California constitution, which requires two-thirds of the Legislature to raise taxes, the bill says a simple majority may raise tax rates if necessary to fund single-payer. WSJ says Democrats have a comfortable super-majority holding 75% of seats in the state Assembly and 78% in the state Senate. With these strong numbers, it is likely Governor Gavin Newsome will have his way. However, the tax increases would still have to be approved by voters since they would override the state constitutional’s spending limit. This should be a good test of the strength of the progressives in the state. It is clear they won’t rest until they have put the government in charge of your healthcare.
Note: For more on single payer healthcare, go to the “Search my Posts” box on the left of the screen and put in words like “Single Payer” and “Medicare for All.”
Author’s Addendum:
On the same day this post was published, The Wall Street Journal reported the California bill, proposed by Progressive California Assemblyman Ash Kalra of San Jose, was killed in committee. Kalra said, “I don’t believe it would have served the cause of getting single payer done by having the vote and having it go down in flames and further alienating members.”
The editors of WSJ said, “These sweeping tax increases were too politically toxic even for Democrats who believe confiscatory taxation as an article of faith. Governor Gavin Newsom campaigned on single-payer but declined to endorse the bill. “It’s one thing to say, it’s another to do,” he said last month. Lest anyone think single-payer is dead, Mr. Kalra said “this is only a pause” and “we will not give up.” The left never does.”
