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For Immediate Release:
August 16, 1999
| Contacts: | Stephen Kroes, Vice President, California Taxpayers' Assn., (916) 930-3103 |
| Jon Coupal, President, Howard Jarvis Taxpayers Assn., (916) 444-9950 |
SACRAMENTO -- The Legislature is close to passing two bills that would raise taxes on workers' wages by more than $1 billion a year. The largest of the two bills, SB 546 (Solis) directly violates Proposition 13, which placed in the state Constitution a requirement that state tax increases may not be enacted with less than a two-thirds vote of the Legislature. The other bill, SB 656 (Solis), would also violate the spirit of Proposition 13.
California Taxpayers' Association vice president Stephen Kroes said, "With California's economy producing huge budget surpluses, it is incredible that the Legislature would be pursuing large tax increases, especially taxes on wage-earners. I thought this Legislature's stated goal was to help working-class families, but now they are defying the Constitution to raise wage taxes by over $1 billion a year. This tax increase will hurt wage earners."
According to Howard Jarvis Taxpayers Association president Jon Coupal, "The Legislature is attempting to sidestep the state Constitution and pass an illegal tax on wage-earners. Howard Jarvis knew a tax increase when he saw one, and this is definitely a tax increase. For 21 years, legislators have known that if they want to take more of our hard-earned money, they need to muster a two-thirds vote. The Legislature is bound by Proposition 13, just like everyone else. This most recent end-run around Prop. 13 will not withstand legal scrutiny."
According to an analysis by the Senate Appropriations Committee, SB 546 would increase taxes by $714 million, by raising the amount of wages subject to unemployment taxes. Currently, employers are taxed on the first $7,000 of wages earned by each of their employees. SB 546 would increase that taxable wage base to $9,000 and would require the Employment Development Department (EDD) to increase the taxable wage base every year thereafter.
Although the unemployment tax is paid by employers, economists generally agree that these types of costs are passed on to workers over time in the form of reduced wages or lower increases in future wages. A tax increase this large could also make some businesses scale back on hiring plans, creating more unemployment.
By increasing the amount of wages subject to taxation, the Legislature is approving a tax increase, plain and simple. But, strangely, the bill has not been marked as a two-thirds vote tax increase bill. If it had been appropriately identified as a tax increase, the bill would not have passed the Senate - it did not receive the required two-thirds vote.
Supporting the taxpayers' position on this tax increase is a long line of court cases declaring that unemployment insurance contributions are indeed taxes. In one instance the California Supreme Court said that the term "contributions" is "a euphemistic expression meaning tax exactions." In another case, the court said "The Supreme Court has definitely decided that contributions paid by an employer under the Unemployment Insurance Act constitute excise taxes." If these payments are taxes, and the courts have said they are, there is no acceptable explanation for the Legislature's attempt to increase the tax without the constitutionally required two-thirds vote.
Even the Legislature's own legal experts have agreed in the past that unemployment insurance is a tax program. A 1984 bill (AB 4000) that included similar unemployment tax increases was keyed by Legislative Counsel as a "tax levy" bill.
The second bill in question, SB 656, would increase taxes directly on workers by $309 million, according to the Senate Appropriations Committee. This bill increases the State Disability Insurance (SDI) tax, by indirectly raising the taxable wage base to $46,327 from the current $31,767. This tax will be directly taken out of paychecks of anyone who earns more than $31,767.
SB 546 and SB 656 are scheduled to be heard in the Assembly Appropriations Committee on Wednesday, August 18.
