As Californians rush to file their taxes before the April 15 deadline, the candidates vying to be California’s next governor have laid out competing visions for the future of taxation in the nation’s largest state.
Leading candidates have proposed eliminating income taxes, cutting taxes for businesses, increasing taxes on corporations and raising taxes on commercial properties.
Not on that list: taxing billionaires.
None of the candidates polling in double digits has embraced the tax proposal, sending shockwaves through California politics: a one-time tax on the wealth of billionaires that a health care union is trying to qualify for the November ballot. But while Gov. Gavin Newsom has spent his final year in office arguing that the state has a spending problem, not a revenue problem, the Democrats most likely to succeed him are eyeing ways to bring new money into the state’s coffers.
Democrats Katie Porter and Tom Steyer have proposed new taxes on large corporations — albeit in different forms — to offset federal health care cuts, boost education funding and help fill structural budget deficits projected to reach $35 billion in the coming years. Porter has also aligned with Republicans Steve Hilton and Chad Bianco in promising to cut taxes for working families and businesses, though the Republicans’ plans would go much further.
None of the leading candidates has indicated which state programs they would cut to make up for lost tax revenue. But in a year when affordability is the dominant voter concern, taxes are top of mind.
“If you’re gonna talk about affordability — and affordability is the main kind of buzzword of the campaign — well, you gotta start with taxes,” said Tim Anaya of the Sacramento-based Pacific Research Institute, a libertarian, free-market think tank.
A tax code ‘frozen in amber’
California’s tax code has been largely frozen in amber for the past century. When voters limited property tax increases through Proposition 13 in 1978, they made the state more dependent on a progressive income tax that relies disproportionately on the high incomes and capital gains of a relatively small number of residents. As a result, California tax revenues fluctuate wildly based on how tech and other large companies perform in the stock market.
Over the past 40 years, efforts to change California’s tax law have largely nibbled around the edges. No one has proposed a wholesale reform of the system, Anaya said.
The governor’s race is playing out against the backdrop of negotiations to shave billions of dollars off state spending next year to close the state’s growing structural deficit. In budget hearings this spring, finance officials in Newsom’s administration have made clear that the governor is not interested in pursuing any new taxes.
Like his predecessor, Jerry Brown, Newsom has bemoaned the annual swings between surpluses and deficits driven by gyrations in personal income tax and capital gains revenue. But he has done little to either broaden the tax base or bring in new forms of revenue, said Chris Hoene, executive director of the left-leaning California Budget & Policy Center.
“He has not done very much on the tax front,” Hoene said. “He’s been more inclined to actually give away new or expanded tax credits — like he became a big proponent of expanding the film tax credit.”
The top Democratic candidates for governor — Porter and Steyer — are vowing to boost state revenues, primarily by honing in on big business.
Hoene said it’s no surprise that their proposals lean into familiar ideas such as raising taxes on corporate profits or property, rather than the relatively novel approach of taxing overall wealth.
“Some of these newer ideas, like taxing wealth … those are things that need to be cooked a bit longer,” Hoene said. “If I were a gubernatorial candidate, I’d be saying, ‘hey, there’s some low-hanging fruit we should be going after first.’”
There’s also some unlikely overlap. Porter and Hilton both propose eliminating state income tax on earnings less than $100,000, a change that would affect more than 70% of California residents who file tax returns. (Porter’s proposal focuses on families, while Hilton said he would extend the exemption to all filers.)
Hilton also proposed reducing the $800 minimum franchise tax that businesses have to pay, regardless of their profits.
Among the lower-polling candidates, San José Mayor Matt Mahan and Superintendent of Public Instruction Tony Thurmond — both Democrats — have offered tax plans on opposite ends of the party’s ideological spectrum.
Thurmond supports the one-time 5% tax on the wealth of billionaires, which could raise up to $100 billion for health care and food assistance. Mahan vows to oppose all tax increases until oversight measures are in place.
The other candidates have not released detailed tax proposals.
Here’s what we know about the leading candidate’s tax plans so far:
Tom Steyer
Steyer argued that while the richest Californians should pay more, the state should focus on taxing corporations. He supports a proposal to close the so-called “water’s edge” loophole that allows multinational corporations to shelter their profits in countries with low tax rates to shield their international profits from state taxes. The proposal would require these corporations to pay taxes based on a share of their global income.
It’s an idea that progressives have floated for years but never managed to pass. This year, ahead of the November governor’s race, Sacramento legislators will debate closing the loophole again.
Steyer also floated a special election in 2027 to pass an increase on commercial property taxes, which were capped by Proposition 13.
Steyer and other progressives have long wanted to split off commercial properties from Proposition 13 protections, an idea known as “split roll.” In 2020, state voters rejected a measure to do just that.
“I am proposing closing a corporate real estate tax loophole that’s existed for over 40 years,” Steyer told KQED’s Political Breakdown. “That brings in more money to the state, that is permanent, that is completely fair.”
Steve Hilton
Hilton argued California’s budget problems are due to overspending, noting that the state budget has nearly doubled since 2017. He also said the state’s affordability problem is tied to how expensive it is to do business in California.
Hilton noted that California, the nation’s most populous state, has more people in poverty than any other state, according to federal government statistics.
“Why?” he said on Political Breakdown. “Because of all these combinations of the spending and the policies that are making it so difficult to start and grow businesses. As a result of that, costs go up. As a result of that, we increase welfare payments because people are struggling. That means taxes go higher. That means it becomes even more expensive. And we’ve got to get out of that cycle.”
Hilton said he will make the state more affordable by eliminating state income tax for Californians earning less than $100,000 and imposing a flat 7.5% tax on earnings over $100,000. Currently, the income tax tops out at 12.3% for individuals making more than $722,000 a year.
He opposed any changes to Proposition 13 and wants to eliminate the minimum franchise tax, which is about $800 annually for all businesses.
Hilton believes the tax cuts will grow California’s economy, which could result in more tax revenue.
Katie Porter
Porter framed her tax plan as key to tackling affordability. At its center: eliminating state income taxes for families who make under $100,000.
“The state takes a chunk of many people’s paychecks,” she said on Political Breakdown. “$100,000 allows people to make ends meet, but also to do the things we need them to do: To save for retirement. To be able to get a house, to be able to put a little money away for college.”
Porter said she would pay for that tax cut by changing California’s corporate tax, which is currently a flat 8.84%, no matter how much a company makes. She wants to increase it gradually, with the highest-earning corporations paying up to 9.75%.
“That would generate enough revenue … to deliver on my promise of free college tuition,” Porter said.
Her free college tuition plan would allow Californians to attend two years of community college for free, then transfer to a University of California or California State University campus, where the state would cover their tuition.
Chad Bianco
Bianco’s campaign said his tax priorities are “straightforward”: he wants to cut them and make up for lost revenue with undefined “wasteful spending” cuts.
Bianco proposed eliminating the state income tax entirely, opposing any new taxes and reducing “cost drivers like the gas tax,” according to a campaign spokesperson.
In a recent interview with KVCR, Bianco accused Democratic leaders of “bilking” the state for billions of dollars, pointing toward state contracts with nonprofits. He estimated annual waste and fraud at up to $50 billion — without providing specifics.
“California government is broken,” he said. “Number one, we absolutely have to stop the waste, the fraud, and the abuse going on in our government … So you eliminate all of the fraud, you become oil independent and use that to fund government, and now we don’t have to pay income taxes.”
He also would “provide targeted relief, including reducing or eliminating state taxes on tips.”
But in a debate with Hilton April 4 at the Lincoln Club of Coachella Valley, Bianco suggested that upending the state’s tax system would be more difficult than repealing regulations enacted by previous governors.
“Regulations are easy, we sign all of those away…all of those boards and commissions can be suspended, the regulations can be suspended,” Bianco said. “The taxes are going to be a different story.”
KVCR’s Madison Aument contributed reporting to this story.