This really is Fantasyland.
The projected “surplus” in Gov. Gavin Newsom’s proposed budget for fiscal 2022-23, which begins on July 1, is $97.5 billion. That would be more than the entire general fund budget for 2012-13, which was $96.6 billion. Just a decade ago. At his press conference, Newsom said, “You’ve never seen a number like this.”
That’s true. This is the 35th year I’ve been writing about California budgets, and usually there’s a small surplus, or a deficit that has to be cut sharply through much wrangling with the legislature. The problem: It won’t last because it can’t last.
The “surplus” results from the magnification of an old problem: The state relies too much on the income and capital gains taxes of rich people. Not just the billionaires you read about, or even the centimillionaires. At the tech companies in Silicon Valley, San Francisco, Los Angeles, and elsewhere, there are many thousands of smart people making millions every year.
Except for being really smart, they’re like the rest of us. Some act frugally and save their money. Others, when the times are good, splurge on the $400,000 Lamborghini. When they do, they cash out stock options and have to pay the 13.3 percent state tax, which in that case would be $53,200. Plus sales tax of 10 percent, or $40,000. Total: $93,200 in tax for one car. Approximately.
But in bad times, the high pay shrivels or the million-dollar workers are looking for new jobs, and the taxes they pay also drop sharply. The state then runs up deficits.
As I have said, the best thing to do with the surplus would be some combination of paying down the state’s unfunded liabilities and returning money to taxpayers. There is some of that.
The new proposal writes, “As a result, more than $5.2 billion is currently set aside in the prefunding trust fund to pay for future retiree health benefits, which has an estimated $95.2 billion unfunded liability to be paid down by 2046. By the end of 2022-23, the trust fund balance will approach $7.3 billion in assets.” A lot more should have been put in.
Then there’s what the proposal calls “Broad Based Relief.” This includes expecting there will be a rise in the minimum wage to 15.50 per hour, from the current $15, due to inflation expected to exceed 7 percent in 2021-22. But that doesn’t include inflation for 2022-23, which could be even higher.
And, “To further address rising prices and return tax proceeds to Californians, a central component of the May Revision is a broad-based relief package. The package includes a $400 rebate to households based on registered vehicles and a temporary reduction to the diesel sales tax rate that was proposed in March of this year.”
That of course depends on the legislature going along with this proposal, instead of devising its own tax rebate—or just spending the money with no rebate to the taxpayers who produced this immense surplus.
- Giving rental assistance;
- Paying for outstanding utility arrearages built up during the pandemic;
- Covering all family fees for subsidized child care programs;
- Continuing health care subsidies for the middle class if federal subsidies expire;
- Paying bonuses to approximately 600,000 workers in hospitals and nursing homes.
The last such opportunity was in 2003, after the recall of Gov. Gray Davis and his replacement by Gov. Arnold Schwarzenegger. Yours truly and others, such as then-state Sen. Tom McClintock (now a U.S. congressman), urged the new governor to put tax reform on a special election ballot. Instead, he pushed into passage Proposition 57 in March 2004, the misnamed Economic Recovery Bond, which covered the budget problem of that day with $15 billion in new debt.
That mistake hit him hard in 2009 when the deficits the bond supposedly cured returned. He then raised taxes $13 billion a year, still a record. In 2011, he left office having made worse the budget problems he had been elected to fix.
The new Newsom budget proposal, however, will spend so much money it easily should get him through his re-election effort and place him in good stead to run for president in 2024. You can tell that’s his aim because he said, “While gridlock persists in Congress and right-wing fanatics turn statehouses across the country into laboratories of hate and oppression, here in California, we’re putting in the work to grow our economy and implement real, inclusive policy change to create a brighter future for all.”
“Laboratories of hate and oppression”? Apparently he’s referring to the expected overturning of the 1973 Roe v. Wade decision on abortion. If that happens, the authority over abortion laws would be returned to the states, meaning recent abortion restriction laws passed in Mississippi, Texas, and other states would go into effect. California then, as he has advertised, would become a destination for abortion tourism.
It’s odd to see such language used about a budget document. But that’s what happens when a politician gets White House Fever.
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