California’s budget surplus is projected to reach nearly $100 billion thanks to plentiful tax revenues for tech executives and other wealthy citizens, providing an election-year boon for the state’s Democratic Gov. Gavin Newsom.
Newsom, who campaigned four years ago as the leader of the national resistance against then-President Donald Trump, declared a surplus on Friday that was “simply without precedent.” Newsom vowed in a $300 billion budget proposal to use the windfall to fight climate change, address chronic homelessness and expand health care, which he said reflected California’s “unshakable values“.
Loren Kaye, president of the California Business Foundation, said that despite the human and economic toll the Covid-19 outbreak has taken on the state, it marks the third year in a row that California has received a windfall as its technology, logistics and financial industries thrive. and education.
He said California’s “recovery has been unbelievably strong and durable.”
California’s projected surplus is higher than the combined spending of every U.S. state except New York and Texas. Much of its extra income is thanks to a 13.3% tax on capital gains, which means the state coffers are inflated as the stock and housing markets boom. The top 1 percent of California taxpayers pay about half of the state’s personal income tax.
“It’s a sign of what’s going on . . . in this country and around the world, wealth and success are concentrated in the hands of a few who enjoy abundance like never before,” Newsom said.
But economists say the state’s progressive tax system leaves it vulnerable to shocks as inflation and interest rates rise and the stock market falls.
“The recession happened,” said Lee Ohanian, a professor of economics at UCLA. “California’s budget is destined to implode in a recession and explode in a stock market boom.”
Newsom, however, said he has added $37 billion in reserves to the budget, including $23.3 billion for the state’s rainy day fund.
The surplus comes amid growing concerns among economists about the state’s declining competitiveness. California has experienced a corporate exodus in recent years, with prominent entrepreneurs like Elon Musk complaining loudly about the state’s high taxes and regulations.
Companies like Tesla, Oracle, Palantir and Hewlett Packard Enterprise have moved their headquarters out of California. Texas, with its low taxes and laissez-faire rules, has attracted many businesses from California.
It wasn’t just businesses that left; enough citizens left the state that they lost their House seats. Kaye blamed the high cost of living in California.
“We have a competitiveness issue, but frankly it’s more on California individuals . . . they can’t create a future here because of the high cost of living,” Kaye said.
“We’re losing a group of middle-income, middle-skilled Californians who can’t afford a home here, can’t afford rent, and can’t afford to live in an area with good schools.”
Newsom’s budget doesn’t directly address these long-term issues. Instead, the governor proposed an $18 billion inflation relief package that would see millions of California car owners receive $400 checks to offset high fuel prices. About $4 billion will go to low-income people who pay utility bills or rent. Small businesses will also receive some tax breaks.
Refunds and stimulus checks are likely to be welcomed by voters coping with rising costs. Newsom faced an effort to oust him last year, but so far he does not appear to face a strong challenger in the fall election. As in his first campaign, he positioned himself as the leader of a haven state for progressive Americans.
have legal rights under the U.S. Constitution abortion Under the threat of an expected Supreme Court ruling, Newsom is seeking to position California as a sanctuary state for women seeking to undergo the process. His budget proposes $125 million to serve women traveling to California from states where abortion is illegal.
The move could catch on in staunchly democratic California, which has not elected a Republican to statewide office since 2006.
“While congressional gridlock persists, with right-wing fanatics turning state capitols across the country into laboratories of hate and oppression, in California we are working to grow our economy and implement truly inclusive policy changes that create a brighter light for all future,” Newsom said in a statement.