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Democrats Push Jobs Tax

In their health care reform proposal, AB 8, Speaker Núñez and Senator Perata have proposed requiring California employers to pay a 7.5 percent payroll tax into a new state healthcare fund, if they do not spend an equivalent amount on health coverage for their employees. The proposed jobs tax would be the single largest tax increase on businesses in our state’s history.

Who Would A Jobs Tax Affect?

• Assembly Bill 8 (Núñez / Perata) would impose a $6.6 billion annual jobs tax on all businesses in California who do not spend 7.5 percent of their payroll on health coverage for their employees, regardless of size. The 7.5% tax could be increased administratively without a vote of the Legislature.

Is It A Tax Or A Fee?

Forcing businesses to either provide health insurance to their workers or pay into a big government program raises important questions about whether this should be considered a “tax” or a “fee.” While this may seem to be just a question of word choice, in Sacramento whether something is considered a tax or a fee makes a big difference. Under the State Constitution, if a measure is considered a fee, the Legislature could impose it by a majority vote. However, if it is considered a tax, then it would require a two-thirds vote of the Legislature to be approved.

My Republican colleagues and I firmly believe that imposing such a costly and burdensome mandate on businesses is a tax and should not be passed by a simple majority vote of the Legislature. Republicans in the Assembly and Senate have pledged to fight hard against any measure that would impose a jobs tax on California businesses.

Jobs Tax Violates Federal Law

The Federal Employee Retirement Income and Security Act (ERISA) of 1974 is a federal law that prohibits states from telling companies what benefits they have to offer to their workers. Forcing employers to provide specific health benefits to their workers or pay a costly jobs tax to the state would clearly violate that law.

Earlier this year, a federal appeals court struck down a Maryland law requiring large employers to either provide health insurance to their workers or pay an 8 percent jobs tax for violating ERISA. The court said that the Maryland tax effectively mandated that employers structure their employee health care plans to provide a certain level of benefits and was therefore illegal.

This important ruling calls into question the legality of any jobs tax plan which is aimed at forcing businesses to provide health care to their workers. There is no doubt that if Democrats succeed in imposing a new 7.5 percent tax on California businesses, it will be challenged in court.

Jobs Will Be Lost

One thing is clear -- imposing a tax on California businesses will result in the loss of thousands of jobs, particularly in low wage, low profit industries.

While Democrats have not put forward an estimate of the number of jobs that could be lost under their plans, the nonpartisan Public Policy Institute of California estimated that 70,000 Californians would have lost their jobs under a similar jobs tax plan from a few years back, Senate Bill 2 (Burton). Signed into law by former Gov. Gray Davis, that plan never took effect because the people of California repealed the law at the ballot box in 2004.

SB 2 only applied to businesses with 50 or more employees, while the Democrat plan applies to all California businesses, regardless of size. It is clear that the number of jobs lost resulting from AB 8 will be far greater because the mandate is much more far reaching than SB 2.