Sometime in the next three weeks, the healthcare workers union SEIU-UHW must make a consequential choice. By the June 25 deadline for finalizing the November ballot, it has to decide whether to keep or withdraw its proposed wealth tax on California billionaires, a measure its backers say would raise roughly $100 billion over five years to replace federal Medi-Cal funding lost to recent cuts in Washington. Governor Gavin Newsom, who opposes the tax, has spent months looking for a way to coax the union into standing down.
The Legislature appears to be building part of that off-ramp. Senate Democrats have floated a new levy they call the Fair Share Contribution, which would require large companies whose employees rely on Medi-Cal to pay a monthly tax for each worker enrolled in the program. The premise is that taxpayers should not subsidize health coverage for people who work for profitable corporations. Whatever its merits, the proposal looks like too little, too late to satisfy a union that has gathered well over a million signatures and sees polling tilting its way.
The money is the first problem. The Senate’s original Foundation for the Future plan claimed the contribution would raise between $5 billion and $8 billion a year. Yet a Senate budget subcommittee has already taken up a concrete version that scores at far less. The design the Senate adopted on May 28 would charge employers of 500 or more workers $285 a month for each employee on Medi-Cal, beginning in April 2027, and raise roughly $2.3 billion a year. That is less than half the low end of what the caucus has been advertising. The gap exists because, by the Senate’s own reckoning, $285 a month recovers only about 45 percent of what taxpayers spend on each enrolled worker.
Even the scaled-down estimate looks optimistic. It assumes a large population of full-time employees at major corporations who qualify for Medi-Cal, but the common narrative about big companies expecting the government to pick up their employees’ healthcare costs may be less relevant in California.
National studies of this phenomenon sometimes focus on states with low minimum wages, which is not the case in California. At the state minimum wage of $16.90 an hour, a full-time worker earns about $33,000 a year, comfortably above the Medi-Cal income limit of $21,597 for a single adult and the $29,187 ceiling for a worker with one dependent. In some cities with higher local minimum wages, a full-time minimum wage worker’s earnings would even exceed the Medi-Cal cap for two dependents.
Many large employers also offer affordable coverage that competes with Medi-Cal; Amazon, among the state’s biggest private employers, recently cut its entry-level premium to just $5 a week. When coverage is that cheap, fewer workers turn to the public program, and a per-worker tax may collect less than advocates expect.
Likely revenue from the new employer tax appears to pale in comparison to what the SEIU-UHW tax could raise. Proponents expect to collect $100 billion over five years. While it is true that some targets of the retroactive billionaire wealth tax appear to have established out-of-state residency, the ballot measure also appears to give the legislature the ability to impose future wealth tax levies with lower thresholds.
Less interesting to SEIU-UHW is the long-term impact the wealth tax might have on general fund revenues. A Hoover Institution analysis finds that California’s billionaires generate between $3.3 billion and $5.8 billion a year in state income taxes, and that driving even some of them out of state would, over time, cost more revenue than the one-time levy raises. Because Medi-Cal depends mostly on federal funding, healthcare workers would be largely insulated from that loss. K-12 education would be the bigger loser, which may give teachers unions a reason to oppose the tax.
The legislative process around the new tax also raises concerns, since we are coming close to the budget deadline and have yet to see finalized legislative language. We may get only 72 hours to assess a new, multi-billion dollar tax ahead of the must-pass deadline, and we do not even know how SEIU-UHW might react. It is even possible that California might end up with both a new tax on employers and a new wealth tax by the end of this year.
Now that is one suboptimal budget process.
Marc Joffe is a Visiting Fellow at the California Policy Center.