Gutting-and-amending a bill originally related to local governments in the Public Resources Code, Assembly Bill 1253 now proposes a massive tax increase on thousands of sole proprietors and high-income Californians. AB 1253 was amended on July 27, the Legislature’s first day back from its extended summer recess.
Originally authored by Assemblyman Robert Rivas when it dealt with the Strategic Growth Council, the bill is now jointly authored by eight Assembly Members: Santiago, Bonta, Carrillo, Chiu, Gonzales, Kalra, Stone, and Wicks. Assembly Members Chu, Jones-Sawyer and Ting are coauthors, while Senators Skinner, Durazo, Gonzalez, and Wiener are also coauthors.
AB 1253 would add Revenue and Taxation Code Section 17044 to create three new tax rates for amounts of income above specified thresholds. As a tax levy, it would take effect immediately upon the Governor’s signature and chaptering by the Secretary of State. The bill would apply retroactively to tax years beginning on or after January 1, 2020. As a tax increase measure, it would require a 2/3 vote of both houses of the Legislature pursuant to Article XIIIA, Section 3 of the California Constitution.
Specifically, AB 1253 would add a new section to the Revenue and Taxation Code to provide the following three higher tax rates (in addition to the existing ones):
- A 1% tax on income above $1 million, but not over $2 million
- A 3% tax on income over $2 million, but not over $5 million
- A 3.5% tax on income over $5 million
These thresholds would have to be recomputed for each tax year beginning on or after January 1, 2021 based upon the California CPI.
Under existing law, the highest base rate for individuals and sole proprietors is 9.3%. There is also the “millionaire’s tax” of an additional 1% for income in excess of $1 million.
Due to a statewide ballot measure, there are four additional tax rates (above 9.3%) ending at 13.3% for incomes above specified amounts. They are 10.3% for incomes between $269,000 – $322,000; 11.3% for incomes between $322,000 – $537,000; 12.3% for incomes between $537,000 – $1 million; and, 13.3% for incomes above $1 million.
If AB 1253 were enacted, the 13.3% rate would rise to 14.3% for incomes above $1 million and the state’s highest rate would be raised to 16.8% for incomes above $5 million.
California already has the highest tax rate in the nation of 13.3 percent, while the lowest is 1 percent in Tennessee, according to the Tax Foundation. Hawaii is the second highest at 11%. The Foundation also notes that nine states have single-rate levies on individuals’ income, while 32 states have graduated-rate income taxes. Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not impose an income tax.
AB 1253 is pending a hearing in the Senate Governance and Finance Committee.
This article has been updated to correct: Assemblyman Robert Rivas is no longer the bill’s author, and the proposed tax increase will impact sole proprietors and high-income Californians.
- Public Hearings Under the Administrative Procedure Act - October 23, 2021
- General Provisions of the California Administrative Procedure Act - October 23, 2021
- Drafting Tax Statutes in California - October 21, 2021