Really amazing tax revenue figures given by Gov. Gavin Newsom last week when he published revised state budget remember the old saying, “The bigger they are, the harder they fall.”
So much money is pouring into the state coffers from personal and corporate income taxes and sales taxes that Newsom said the state is almost $ 100 billion more than needed finance current expenditures, twice as much as its original budget proposed in January, estimated.
“You’ve never seen so many,” News told reporters.
This is true and it creates a potential problem that can be just as monumental. The large budget surplus places great demands on new expenditures on the part of proponents of educational, social, and health services. But when they are spent on new payments, they become liabilities when the economy inevitably cools down and incomes decline.
Budget ups and downs have plagued the state for decades as personal income taxes have become the largest source of income, with most coming from relatively few high-income taxpayers. Their incomes, largely due to capital gains from investments, have been and remain more volatile than ordinary people’s incomes, and when they declined, this had a disproportionately strong impact on government finances.
California’s revised budget provides for $ 214.2 billion in direct taxes to the general fund, with personal income taxes providing 64% of that. About half of these income taxes fall on 1% of the top taxpayers, less than 200,000 people in a state with nearly 40 million residents.
Presenting the revised budget, Newsom said he was “very mindful” of potential volatility and responded by investing more money in reserves and making very few new permanent and long-term spending commitments.
About half of the projected surplus, according to the law, should be spent on public education and the expansion of the “black days fund” and other reserves to nearly $ 40 billion. That leaves an estimated $ 49 billion in so-called “discretionary income,” which can be spent on whatever he and lawmakers want.
Newsom says his budget will spend 94% of that money on one-time appropriations or debt payments to avoid long-term commitments that could have unpleasant results if the economy cools and incomes decline. “It’s important,” he said of the strategy.
Yes, because proponents of empowerment and their legal allies argue that surplus is a golden opportunity to fill gaps. Minutes after Newsom’s budget press conference (which, incidentally, lasted 132 minutes), advocacy groups expressed disappointment.
The question that arises in connection with surprisingly high incomes is whether the good times will continue – at least the good times for high-income taxpayers.
While the budget revision was coming to an end, the world, the nation and California were experiencing some disturbing trends that Newsom recognized.
“This May revision reflects a significantly improved revenue forecast due to recent cash trends and improving key economic indicators,” Newsom said in the legislature. “However, the forecast has become more uncertain, given Russia’s war against Ukraine, high inflation and the expected actions of the Federal Reserve to raise interest rates. In addition, the increase in capital as a percentage of personal income of the state is at the level last observed in 1999 – just before the collapse of dotcoms. In addition, the May revision forecast was finalized before the recent decline in the stock market.
California is not an economic island, and these potentially negative factors are beyond state control. However, very cheerful budget revenue forecasts ignore them and suggest that golden geese, California high-income taxpayers, will continue to thrive and continue to lay golden eggs.
CalMatters is a community journalism company that seeks to explain how the California Capitol works and why it matters.