While California’s overall economy is still being battered by the COVID-19 recession and unemployment remains high, its tax revenues have shown amazing resiliency.
The recession’s impact has fallen largely on lower-income Californians while those on upper rungs of the socioeconomic ladder, whose taxable incomes are the most important source of state revenues, have continued to prosper.
Thus the $54 billion budget deficit that Gov. Gavin Newsom projected last summer as the economy tanked never appeared and suddenly, there’s a windfall of unanticipated revenues that Newsom wants to spend on helping the pandemic’s economic victims — low-income families and small businesses, especially — recover.
“We are investing, in our energy and our focus, to deal with the disproportionate impacts of this pandemic,” Newsom said Friday as he introduced a $227.2 billion budget for the fiscal year that will begin on July 1.
Newsom wants the Legislature to jump-start pandemic relief with a $5 billion “immediate action package.” It would, for low-income families, double the $600 payments in the most recent federal aid legislation, and provide direct aid to small businesses that Newsom ordered to be closed to battle spread of infection. He also proposes extending a moratorium on evictions of recession-strapped renters.
His Proposed Budget Is a Curious Mixture of Billions of Dollars in Additional Spending
Newsom clearly wants to shine the media spotlight on his relief proposals, rolling them out prior to Friday’s formal presentation, which raises a perhaps cynical question: Does his plea for fast action reflect their importance, or his concerns about a recall movement that seems to be gathering steam?
The recession’s economic impacts — especially on restaurants, barbershops and other small businesses forced to close their doors — have clearly given impetus to the Republican-sponsored recall movement, which has two months to collect enough signatures to place the issue before voters.
Even if one assumes Newson’s proposals are expressions of genuine concern, not motivated by personal politics, his proposed budget is a curious mixture of billions of dollars in additional spending and worries that another budget crisis is looming on the horizon.
Newsom boasts of having $34 billion in “budget resiliency,” mostly in the form of reserves. His budget also warns, “budget resiliency will be critical to protect programs in the future, as expenditures are projected to grow faster than revenues, with a structural deficit of $7.6 billion projected for 2022-23 that is forecast to grow to over $11 billion by 2024-25.”
He Won’t Entertain New Taxes on the Wealthy Being Championed by Some of His Fellow Democrats
Much of the budget is on autopilot with built-in increases, particularly the largest single portion, K-12 education, and those increases, coupled with very slow projected revenue growth, create the structural deficit. Revenues from the state’s three major tax sources — personal income, sales and corporate income — are projected to grow by an average 1.9% a year through mid-decade while spending increases now in law will far exceed that rate.
Newsom cited the long-term income/outgo squeeze when a reporter asked him about his long-standing pledge to bring universal single-payer health care to Californians, which would cost tens of billions of dollars.
He said he stands by that goal but in the next breath once again insisted that he won’t entertain new taxes on the wealthy being championed by some of his fellow Democrats, implying fear that they would drive away high-income Californians whose taxes are so vital.
Recently, Elon Musk was crowned as the world’s richest man due to soaring stock values of Tesla, his electric car company. His coronation came just a few weeks after he moved to Texas, which has no income tax, with a farewell blast at California’s treatment of entrepreneurs.
An utter dependence on the wealthy underscores the yin and yang of budget politics in a very blue state.
CalMatters is a public interest journalism venture committed to explaining how California’s state Capitol works and why it matters. For more stories by Dan Walters, go to calmatters.org/commentary.