Skip to content

key takeaway

California corporate profits reached a record-breaking $368 billion in 2021, but they pay just about half of what they did in the early 1980s in state taxes as a share of those profits. Building a tax system that is more fair will help Californians — whose wages have not kept pace with inflation or record profits — make ends meet.

All Californians should have the means to keep food on the table and a roof over their heads, and to invest in education and advancement for themselves and their families. California’s businesses have a role to play in achieving this vision, both in providing well-paying jobs and in contributing their fair share to state revenues to support public services — including a safety net for people during times of unemployment, disability, or when time is needed to care for family. However, while corporations have seen skyrocketing profits in recent years, the typical California worker’s earnings have barely kept up with inflation.

California corporate profits reached $368 billion in 2021, reflecting a 155% increase since 2002 in inflation-adjusted terms. In contrast, a typical California full-time, year-round worker only saw their employment earnings increase by 13% during that time period after accounting for inflation.1The higher median wage growth seen in 2020 and 2021 was likely due in part to a change in the composition of the workforce. Because lower-paid workers disproportionately lost their jobs during the first two years of the pandemic, the remaining workforce was relatively higher paid. Nationally, this composition effect had mostly subsided by 2022. Indeed, inflation-adjusted median employment earnings growth in California from 2002 to 2022 was only 8%. This figure is not shown in the chart because comparable data on corporate profits for 2022 is not yet available.

Large highly profitable corporations can afford to contribute their fair share in taxes.

Corporate profits are highly concentrated among a small group of very profitable corporations. For example, less than 1 out of every 100 corporations (just 0.6%) made $10 million or more in annual profits in California in 2021. However, this small share of corporations accounted for more than 60% of corporate profits statewide.

Those corporations with profits of at least $10 million saw their state profits more than double from $113 billion to $234 billion between 2017 and 2021. Corporations with profits of $5 million to $10 million also saw a near-doubling of their profits during that same period. At the same time that profitable corporations were doing exceedingly well, many Californians — particularly those with low incomes and Black, Latinx, Pacific Islander, and other Californians of color — suffered the devastating health and economic consequences of COVID-19, and continue to struggle with the high costs of necessities. Californians have seen their purchasing power fall with rising prices in recent years, a phenomenon which some researchers suggest has been amplified by corporations keeping prices high even as their costs declined and their profit margins increased.

Existing Tax Policy Exacerbates Inequities

Recent research shows that federal and state tax systems actually reinforce the concentration of profits among a small share of large corporations. In other words, after-tax profits are even more concentrated at the top than pre-tax profits. For example, the largest 10% of US public non-financial corporations held 95% of domestic corporate profits before federal and state taxes, but 99% of profits after taxes, according to analysis by the Roosevelt Institute. This is not surprising considering that some of the biggest corporate tax breaks provide disproportionate advantages to large and multinational corporations, and these corporations can afford to hire expensive accountants and lawyers to help them game federal and state tax systems.

Secure your ticket!

Join us in Sacramento on April 16, 2024, for engaging sessions, workshops, and networking opportunities with fellow changemakers, inspiring speakers, and much more.

More equitable state taxation of corporations would counteract the outsized advantage of corporations with the most market power and raise needed state revenues for critical public services to benefit California’s communities. It could also increase racial and economic equity in the state, since corporate profits flow to corporate stockholders, who are disproportionately white and wealthy. The equity impacts would be even greater if the revenues raised were used to support Californians who have been economically disadvantaged by racism and discrimination.

Big corporations can afford to contribute their fair share in taxes. Corporations pay about half of what they did in the early 80s in state taxes as a share of their California profits. Plus, California corporate taxes are a minuscule share of their overall business expenses.

Requiring immensely profitable corporations to contribute more to supporting state services and combating corporate tax avoidance would level the playing field among businesses and help create a more equitable state for Californians.

  • 1
    The higher median wage growth seen in 2020 and 2021 was likely due in part to a change in the composition of the workforce. Because lower-paid workers disproportionately lost their jobs during the first two years of the pandemic, the remaining workforce was relatively higher paid. Nationally, this composition effect had mostly subsided by 2022. Indeed, inflation-adjusted median employment earnings growth in California from 2002 to 2022 was only 8%. This figure is not shown in the chart because comparable data on corporate profits for 2022 is not yet available.

Don't miss an update.

Join our email list!

Facing a significant budget shortfall, state leaders must do everything they can to protect critical services and exhaust all alternatives to cuts that would jeopardize people’s well being. This should include responsibly drawing on state budget reserves and raising additional revenue by making the tax system more fair.

California spends tens of billions of dollars each year on tax breaks, some of the largest of which benefit wealthy corporations and individuals. These tax breaks take billions of dollars away from communities, while perpetuating racial income and wealth gaps. Yet the governor proposes raising just $400 million by closing tax breaks this year — less than 1% of his proposed budget solutions.

Secure your ticket!

Join us in Sacramento on April 16, 2024, for engaging sessions, workshops, and networking opportunities with fellow changemakers, inspiring speakers, and much more.

Making the tax system more fair should be a top long-term priority — not just to prevent cuts when there’s a budget shortfall, but to make possible the investments that are needed to help Californians thrive. All Californians deserve access to economic opportunity, housing, and health care, and policymakers have the means to achieve this vision through fairer taxation.

Don't miss an update.

Join our email list!

key takeaway

Despite record profits, corporations pay a tiny fraction of their California expenses in taxes — just 0.11% on average. Modest corporate tax increases could generate substantial revenue to boost income for families in poverty, fund crucial public services, and address economic inequality, especially for Californians of color.

State tax revenues make possible the public services and infrastructure that Californians rely on, like education, roads and transit, and the social safety net to help families and individuals make ends meet during times of financial instability. Corporations doing business in California benefit from the state’s resources and investments and should be expected to fairly contribute to state revenues.

Corporations Underpaying Their Fair Share

Meanwhile, corporations have been paying around half of what they did a generation ago in state taxes as a share of their California income — less than 5% in 2019 compared to 9.5% in the early 1980s — due in part to state tax rate reductions and the creation and growth of corporate tax breaks over the years. This is despite the fact that pre-tax corporate profits have been near record highs (as are after-tax profits).

In addition, the taxes these corporations pay to the state on their California profits are an incredibly small fraction of their expenses — just 0.11% on average from 2017 to 2019, according to a Budget Center analysis of Franchise Tax Board data.1Business expenses are defined in this analysis as the total deductions reported to the Franchise Tax Board for corporations filing taxes in California. Data for tax years 2020 and 2021 are excluded from this analysis because a pandemic-era temporary policy was in place for these years that limited the ability of corporations to fully utilize tax credits and to offset current-year income with prior-year losses. Therefore, corporate tax collections were higher in these years than in normal years. In other words, just over one cent of every $10 of what these businesses spent went to California corporate taxes.

Even if state leaders increased corporate taxes to protect and strengthen public services — by raising tax rates on the most profitable corporations and/or limiting corporate tax breaks — these taxes would still represent a small fraction of total business expenses. For example, if corporations had contributed $2.5 billion more in taxes each year, their California corporate taxes would have made up 0.13% of total business expenses. If they had contributed $5 billion more, these taxes would have made up 0.16% of their expenses.

To put this in perspective, $2.5 billion in additional revenue could boost the incomes of families by more than $2,000 for every child living in poverty in the state, and $5 billion could provide more than $4,000 per impoverished child. However, it would not substantially increase the costs of doing business for profitable corporations and would be unlikely to drive companies’ decisions about how much business to do in California. This is especially true considering that corporations’ tax obligations to the state are based on how much of their sales are made in California, and California provides a considerable customer base.

Secure your ticket!

Join us in Sacramento on April 16, 2024, for engaging sessions, workshops, and networking opportunities with fellow changemakers, inspiring speakers, and much more.

Substantial Benefits for Struggling Californians

While a tax increase of either size would be manageable for wealthy corporations, the resulting revenue could be very meaningful for Californians struggling with the basic costs of living, including housing, food, child care, and health expenses. Many of these Californians have been locked out of economic security in large part due to the low wages, insufficient benefits, and few advancement opportunities provided by some of these very wealthy corporations. Californians of color have been particularly excluded from economic opportunities due to structural racism and discrimination in employment and other arenas.

Corporations Can Afford to Contribute More

Highly profitable businesses in California benefit from having healthy, well-educated workers who can afford to live near their jobs and have the necessary care and education for their children while they work. These corporations can afford to pay a small increase in state corporate taxes to support caring for and educating California’s children and youth, keeping the state’s residents healthy and housed, and ensuring they don’t fall through the cracks when faced with a crisis.

  • 1
    Business expenses are defined in this analysis as the total deductions reported to the Franchise Tax Board for corporations filing taxes in California. Data for tax years 2020 and 2021 are excluded from this analysis because a pandemic-era temporary policy was in place for these years that limited the ability of corporations to fully utilize tax credits and to offset current-year income with prior-year losses. Therefore, corporate tax collections were higher in these years than in normal years.

Don't miss an update.

Join our email list!