California Democrats agreed this week to tax-related proposals that could raise health insurance premiums and slap a new tax on software downloads — as critics blast the deal for piling on costs at the worst possible time.
California lawmakers inked a $356 billion state budget late Monday that will be negotiated and finalized with Gov. Gavin Newsom within the next two weeks.
So far, legislators seem to be in agreement with Newsom on multiple tax measures to raise more revenue, as fiscal watchdogs have warned that California is still “ill prepared” for even a slight hiccup in revenues in the future.
One measure would extend a tax on health care providers to potentially generate roughly $2 billion a year starting next year. While the state had taxed Medi-Cal providers at a higher rate to get federal funding, that revenue will be gone — so policymakers are eyeing a higher tax on private plans.
Some experts said that could drive up health plan costs and hike monthly insurance premiums as insurers look to pass on the cost to consumers.
For example, individuals with private health insurance plans could see their rates go up an average of about $100 a year, or $400 a year for a family of four.
“This budget is a reflection of the majority’s values,” said Assemblymember David Tangipa (R-Fresno), in a statement. “If you’re a hard-working Californian or a business owner, your taxes are going up. If you pay for private insurance, your bill is going up.”
Some Democrats instead wanted a monthly penalty on big companies who don’t pay enough to their employees who rely on Medi-Cal. Instead, the latest budget agreement postponed that debate off to Newsom’s successor next year.
Democratic leaders said the tax was a necessary compromise.
“We have, in this moment, to make some decisions that will generate revenue very quickly,” Senate President Monique Limon (D) told reporters.
Lawmakers also seemed to agree on a sales tax imposed on software like Slack and Microsoft Suites starting next year. Additionally, the measure would extend a cap on a tax credit that big businesses could claim.
Under the proposal, sales and use tax would apply regardless of how the software is delivered or accessed. The software tax is estimated to bring in $900 million annually, according to legislative analysis.
Business groups opposed that measure, saying it could stifle innovation.
“At a time when policymakers should be encouraging innovation and technology adoption, these proposals would increase costs for businesses, schools and consumers that rely on software every day,” the Business Software Alliance said in a statement.
Republican gubernatorial candidate Steve Hilton blasted Sacramento politicians for approving such cost increases.
“They’ve just put up your taxes in Sacramento even though we already have the highest cost of living in the country,” he said. “The best way to fight the cost of living crisis is for government to take less of your money in the first place!”
Nothing is final yet. Legislative leaders’ negotiations with the governor are underway, and state Republicans promised to continue their push to drop the taxes.
“We need a budget that cuts taxes, fully funds Proposition 36, and puts affordability first,” said Assembly Republican Leader Heath Flora.
The Post reached out to legislative budget leaders for comment.
