May 17, 2022

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Tax windfall pushes California’s budget surplus to nearly $100bn

2 min read

Flush with tax revenue from tech executives and other wealthy citizens, California’s budget surplus is expected to reach nearly $100bn, providing an election-year boon to the state’s Democratic governor, Gavin Newsom.

Newsom, who campaigned four years ago as the leader of a national resistance to then-president Donald Trump, declared on Friday that the surplus was “simply without precedent”. Newsom vowed to use the windfall to tackle climate change, address chronic homelessness and expand healthcare in a $300bn budget proposal that he said reflected California’s “unshakeable values”.

Despite the human and economic toll the Covid-19 outbreak has taken on the state, this marks the third consecutive year of unexpected windfalls for California as its technology, logistics and finance industries have thrived, said Loren Kaye, president of the California Foundation for Commerce and Education.

“It’s pretty unbelievable, the momentum and persistence of the recovery” in California, he said.

California’s projected surplus is higher than the total spending of every US state except for New York and Texas. Much of its extra revenue is thanks to a 13.3 per cent tax on capital gains, meaning state coffers have swelled along with booming stock and property markets. The top 1 per cent of California taxpayers pay about half of the state’s personal income tax.

“It’s a sign of what’s happening . . . across this nation and around the world, a concentration of wealth and success in the hands of a few that are enjoying abundance in historic and unprecedented ways,” Newsom said.

But with inflation and interest rates rising and stock markets declining, the state’s progressive taxation system leaves it vulnerable to shocks, economists say.

“Recessions happen,” says Lee Ohanian, an economics professor at UCLA. “The California budget is hard-wired to implode in a recession and explode when stock…

2022-05-14 13:23:16

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