SB 567 (Lara; D-Bell Gardens) was identified as a job killer because it will significantly increase taxes on California businesses, who already have one of the highest tax burdens in the country.
It bypassed a vote or discussion by the Senate Appropriations Committee because the committee chair (also the bill’s author) determined there aren’t significant state costs associated with the three major tax increases the legislation proposes.
SB 567 will be eligible for consideration when the Senate convenes next on Friday morning.
Targets Family Businesses
SB 567 targets family-owned businesses that transfer the business upon death to other family members. Under SB 567, the family members who inherit the business/property would be forced to pay capital gains on the property that has appreciated in value, if the family member(s) have an adjusted gross income of $1 million or more.
This change would take California out of conformity with federal law, and place another layer of taxes on a small group of Californians paying the highest personal income tax, at 13.3%.
The top 1% of income earners in California pay half of all income taxes received, according to recent data from the Legislative Analyst’s Office. These top income earners upon which the General Fund is so reliant, are also the same individuals who would be exposed to the SB 567 tax increase, and who have the most resources to move to another state to avoid even igher taxes.
California should not continue to target these high earners with additional taxes, when they already contribute such a significant amount of revenue into the General Fund.
SB 567 also seeks to eliminate the current deduction allowed for compensation paid to executive officers for achieving performance-based goals. This proposal would harm all corporations, but more specifically, those companies incorporated in California.
While CEO compensation is an ever-popular debate topic, SB 567 fails to recognize the enormous responsibility placed on these individuals to maintain or improve the success of a company that creates jobs for hundreds or thousands of workers, and value for thousands of shareholders, including pension funds.
The current deduction was created to allow companies to incentivize CEOs to achieve important performance goals for the benefit of the company, employees and shareholders.
The Internal Revenue Service already has strict guidelines on this deduction to prevent any abuses.
Eliminating this deduction for California publicly traded companies unfairly penalizes companies incorporated in California. Moreover, the proposed change is retroactive, meaning companies who will be harmed by the elimination of this deduction will not even have an opportunity to mitigate any tax exposure it creates.
California already has the highest personal income tax and sales tax rates in the country, and one of the highest corporate tax rates as well. Californians just approved various tax increases and extensions on the November 2016 ballot. Additionally, state appropriations may exceed the Proposition 4 (Gann) limit, which over the next two years may trigger significant tax reductions.
Substantially increasing California’s revenue again by targeting high earners and businesses, as proposed by SB 567, is punitive and will ultimately harm California’s economy and General Fund.
SB 567 is eligible to be considered when the Senate convenes on May 26.
The CalChamber is asking members to contact their senators to urge them to oppose SB 567 as a job killer.
Staff Contact: Jennifer Barrera