Calif. lawmakers propose taxing wealthiest corporations to pay for public schools to generate $5B/yr

OAKLAND, Calif. (KTVU) - Fresh off teachers’ strikes in Los Angeles and Oakland, three East Bay lawmakers are hoping to drum up money from the nation’s largest corporations who do business in California to generate billions more for K-12 schools, community colleges and early childhood education — while also helping reduce the state’s income-inequality gap.

On Monday morning, Sen. Nancy Skinner, D-Berkeley, along with Assemblymembers Buffy Wicks, D-Oakland, and Rob Bonta, D-Alameda, held a news conference explaining how they would pay for this idea. They are proposing a progressive, two-tiered taxing system of the nation's wealthiest companies that do business in California. 

“Corporate profits are at an all-time high, yet the portion of tax revenue California receives from corporations is at close to its lowest point in 40 years,” Skinner said. “SB 37 just asks corporations to pay their share, so we can cut income inequality and help fund our kids, our teachers, and our schools.”

First, the bill would raise the corporate tax rate for companies with net income above $10 million — the top 0.2 percent of companies that do business in the state — to 10.84 percent, up from 8.84 percent. 

Then, "Corporate Fair Share for California & Californians”  bill,  or SB 37, would amend the Revenue and Taxation code to raise taxes even more on those 2,000 or so companies based on how much they pay their chief executive compared with their workers. Those paying top management more than 300 times that of their average employee would pay a state tax rate of 14.84 percent. The top three companies with the biggest disparities between CEO and worker pay are Mattel, McDonalds and the Gap, according to the U.S. Securities Exchange Commission and the Economic Policy Institute. Kohls, Walmart, Chipotle and Macy’s are also on the Top 10 list. 

In all, the lawmakers believe the corporate taxes would generate a total of $5 billion annually. Half of that would go to fund K-12 education and community colleges and a portion of the remaining would go toward early childhood education. If passed, the law would take effect — and the money would start flowing — on Jan. 1, 2020. 

While tech companies like Facebook and Google would see their taxes increase, they wouldn’t necessarily face the second tier of taxing, according to the lawmakers' aides, because these companies pay their employees so well and the pay gap between CEO and worker isn’t so great. 

The bill is trying to right some past inequities.

Throughout the 1970s, corporate tax revenue made up more than 15 percent of California’s general fund revenues. Today, corporate tax revenue accounts for about 9 percent, according to the lawmakers. And with the 2017 Trump tax cut that slashed the corporate tax rate 40 percent nationwide, corporations that do business in California are holding on to an extra $13 billion to $17 billion, money they previously transmitted to the IRS, the lawmakers pointed out. 

At the same time, income inequality has risen steeply in the last half decade, with the gap between top corporate pay and middle-class wages widening exponentially. In 1978, U.S. CEOs were paid 30 times the pay of an average worker. Since then, according to a 2018 report by the Economic Policy Institute, compensation for CEOs has skyrocketed to 312 times the pay of the typical worker. Today, the average CEO of a large corporation pockets about $19 million a year compared to just $54,600 for the typical worker.

In California, income inequality has risen faster than most other states, with California having the fourth highest gap between rich and poor, according to data provided by the lawmakers.

The lawmakers felt that this potential new windfall of money should be funneled into education, especially since the Prop. 13 in 1978, which reduced property tax rates by more than half, severely affecting public schools.

“It’s shameful that California ranks 41st in per pupil spending nationwide when we used to rank in the top 10,” Wicks said. “SB 37 will provide California with billions in new revenues — revenues that will fund higher teacher salaries, more education programs, and early childhood needs.”

According to the National Education Association, California spent only $10,420 per pupil in 2018, which is below the national average of $11,934. To compare, per pupil expenditures were $21,118 in New Jersey, $21,731 in Connecticut, and $23,519 in New York.

Teachers in Los Angeles went on strike in January and in March in Oakland. Several teachers, administrators and activists stormed Sacramento, imploring lawmakers for more money.

This bill, in part, is an answer to their pleas. 

"If we don't change the way our schools are funded across the California, we're not going to solve our problems in Oakland and we're going to have problems across the state," Katherine Carter, principal at Oakland SOL said during the strike. "The fight isn't at the city level, it's at the state level." 

New taxes require a two-thirds super majority. Corporations and lobbyists need only get 14 no votes in the senate or 27 votes in the assembly to kill it.  

In its current form, the Bay Area Council, a consortium of the region’s biggest employers, said it would oppose this bill.

EDITOR'S NOTE: Lisa Fernandez's spouse works in Skinner's office. KTVU's Tom Vacar contributed to this report.