Column: California is projected to have another big budget surplus. Here’s how Newsom should use it

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Gavin Newsom has billions to be thankful for this Thanksgiving—an unexpected $31 billion to buy gifts for voters.

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Independent legislative analyst Gabriel Petek calculated that figure last week but cautioned that he could be way off. He pointed out that the actual state budget surplus could range from $60 billion to $10 billion.

State finance department spokesperson H.D. The $31 billion estimate, however, is “more than reasonable,” Palmer says.


Whatever the size, it’s a bundle the governor and legislature didn’t anticipate when they prepared the current $263 billion budget in June.


The extra money is on top of the windfall profit of $76 billion at the time. And Newsom enjoyed a $22 billion surplus in 2019, his first year as governor.

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Taxes are “increasing revenue at historic rates,” Petek wrote.

All types of revenue – income, corporate, sales.

“Under this increase is a meteoric rise in many measures of economic activity,” Petek pointed out.

“Retail sales have registered double-digit growth during 2021. Stock prices have more than doubled since the pandemic last spring. Many major firms have historically earned high earnings….

“Tax revenue … is nearly $28 billion higher than the Budget Act estimates.”

Sacramento is raising so much tax money that it has reached its constitutional spending limit. Therefore, Petek estimates that $26 billion of additional funding will be restricted – $14 billion during the current fiscal year and $12 billion in the budget year beginning next July.

This is due to Proposition 4, the so-called Gain Limit, which was overwhelmingly approved by voters in 1979. Californians were on a tax-cutting crusade. This was a year after the landmark property tax-cutting initiative, Proposition 13, was landlocked. Paul Gann was a Proposition 13 co-sponsor with Howard Jarvis.

Under the Anthem measure – officially called the state appropriation limit – Sacramento spending was limited by inflation and population growth. Until recently, inflation was low. The population is stable.

The original Act ruled that if the limit was reached, surplus money was to be “returned” to taxpayers “by amending tax rates or fee schedules”. The law was later amended to split the surplus 50-50 between taxpayers and schools.

Under the current interpretation of the law, additional revenue can be used in three ways:

1. Taxes can be deducted. What a concept!

2. The money can be divided between taxpayer exemptions and K-14 schools.

3. It can be used for things like public works projects, local government aid, debt repayments and emergencies.

The first anthem limit is reached only once. In 1987, Republican Governor George Duchamajian and the Democrat-controlled Legislature settled on a small waiver.

Singles got a check for at least $32 and couples got $64. In addition, people were exempt depending on the income tax they paid, up to a maximum of $118 for an individual and $236 for a couple.

There was something for everyone – the opposite of what Newsom is contemplating now. Democratic leaders protested at the time, but there was a Republican governor—a world of difference from today’s one-party rule in Sacramento.

Perhaps next year there will be a so-called exemption, but not in line with the spirit of the anthem limit, which voters adopted. A discount is when you buy something or pay tax and get a portion back. What Newsom calls a rebate is actually a social spending program.

Newsom indicated last week that he wants to model the exemption, following a law and legislature enacted in June that only benefits people earning less than $75,000 a year.

First, a $600 payment, which Newsom called the Golden State Stimulus, was given to taxpayers who earned less than $30,000. Later, checks for $600 were given to those making between $30,000 and $75,000.

Those earning less than $75,000 with dependents received an additional $500. Immigrants with a dependent illegally in the country received $500 on top of the $1,000 total. Why?

“They live here. They contribute to California’s economy and society. And they weren’t eligible for any comparable federal aid,” Palmer says.

I’m not arguing against the policy – or for – just pointing out that it’s verbal butchery to call it an exemption. The highest-income taxpayers made up the lion’s share of the surplus, not getting a single penny back.

The top 20% of taxpayers pay 89% of state income tax based on the latest available 2019 data. And they didn’t get any tax exemption.

Personal income tax supplies two-thirds of state general fund revenue.

Newsom was asked at a news conference how he intended to handle the new additional tax revenue.

Referring to the Budget Act in June, the governor replied, “You saw last year’s preview.” “We had the largest tax exemption of any state in American history – $12 billion.”

Newsom also pointed out that the vast surplus could be used to increase reserve funds, reduce pension obligations, help small businesses, doubling the earned income tax credit for poor people, expanding child care and the social safety net in general. was made to strengthen it.

“That’s the approach,” he continued. “Fiscally disciplined … recognizing the one-time nature of most of these dollars … so that when the economy shrinks, when the market begins to adjust, that’s when we try to tame this beast called inflation.” , so we don’t get flat-footed.”

Here’s a suggestion: Use the most unexpected to pay cash for public works instead of borrowing.

Buy badly needed wildfire fighting equipment. These smoky, blazing summers are unacceptable.

Invest in water features including desalination and cleaning of aquifers.

Build housing for the homeless.

Another idea: suspend auto registration fees to help offset exorbitant gas prices.

Every taxpayer is entitled to share in the bonus.

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