Senate sends revenue-raising package taxing software, health plans to Newsom

The California Senate on Thursday passed a set of bills that raise taxes on commercial health insurance plans and software programs and end cap some corporate tax credits, with the chamber’s Democrat caucus following suit on their Assembly colleagues.

The tax package now goes to Gov. Gavin Newsom. All the tax raising measures mirrored ones the governor had proposed in his May budget, so there’s little reason to expect a veto.

The bills, which could raise more than $3 billion in the coming fiscal year, are part of a budget package Democratic leaders say shores up the state’s social safety networks in the face of slashing cuts from President Donald Trump and the Republican-controlled U.S. Congress.

The two chambers have yet to pass one piece of the Legislature’s budget agreement that Newsom has not publicly ratified. That’s a requirement for the California Department of Finance to collect data and craft proposals for a new corporate tax targeting companies who leave their employees reliant on Medi-Cal for health coverage.

Senate leadership had pushed hardest for that proposal and sought to impose the tax itself immediately in their initial budget plan. But that was a politically challenging idea, and senators ultimately celebrated an agreement that advanced the corporate tax proposal without passing it into law.

As in the Assembly on Monday, Republicans spoke vehemently against the taxes but had little chance at fracturing the Democrat supermajority. The software tax and tax on managed care organizations (health insurance providers) will together increase the tax bill of Sutter Health by $35 million, Sen. Roger Niello, R-Roseville, said, using the healthcare giant as an example of how the taxes will impact California businesses.

Republicans broadly accused their colleagues of continuing to exacerbate the state’s cost-of-living issues. “The people we serve are crying out for affordability,” Sen. Shannon Grove, R-Bakersfield, said.

But Democrats countered that new revenue sources were needed to shore up the state’s budget, and that they hoped to put the burden on companies that have historically received big tax breaks.

“It is not right that a farmworker in my district is paying more in income taxes than Google,” Sen. Christopher Cabaldon, D-West Sacramento, said, speaking in favor of capping a tax credit for research and development.

And Democrats labeled the tax increases on corporations necessary to counter a Republican effort nationally. The state’s budget was taking hits, they said, because Trump and Republicans in Washington chose to slash funding for social services and Medicaid to pay for tax cuts that have sent corporate profits and earnings of the nation’s wealthiest individuals sharply upward.

Opposition to that measure has been particularly fierce in the technology and biotech sectors, whose representatives say tax breaks for research allow for the kind of expensive bets on innovation that have long driven California’s dynamic economy. Industry opposition to the health insurance plan tax was also fierce, with those companies’ representatives saying working Californians were likely to see their monthly premiums go up.

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