Maybe we should change California’s official state motto from “Eureka” to “Show Me the Money.” Most of the high-profile news we get about California deals with the so-called “resistance” to the Trump administration. But, even in those discussions, money is an important barometer. And, consider that money was the key ingredient in many big stories coming out of the state last week.
California buffed up its reputation as a high tax state when Governor Jerry Brown signed the gas tax and vehicle fee increase bill. That will take a chunk of change out of Californian’s pockets, especially hitting hard lower and middle-income taxpayers.
But the top income taxpayers will take a tax hit if the White House proposal eliminating deductions for state and local taxes announced during the week becomes law. Then California’s highest in the nation tax rate becomes more punishing to the high-end taxpayers whom the state relies on heavily to fund services. How long will some top taxpayers stick to their California residences with no-income tax Nevada beckoning from across the border.
Then came the news that California tax collection is not hitting its projections for April. The Legislative Analyst reported that April tax collection was ending poorly (final figures out today) with projections that the revenue will be about 4% off or over a half-billion off the mark. While the state tax collection was ahead of projections coming into April, the month’s tax revenue haul is the most important as tax returns are filed. Red flags of a slowing economy must be watched with the April tax report.
Which ought to concern the spend-happy, program-creating legislature. Not that there are any signs that concerns about revenues stalled big spending plans last week. One of the largest, costly spending proposals, a single-payer health plan, passed easily out of its first committee.
California continues on a treacherous path with its financial decisions. The bottom financial line still will determine what the state can and cannot do—or even should do.
As the 10th issue of the Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index forecasts, California’s economic outlook is 47th among the state’s because of its high taxation and heavy regulations.
Decisions the legislature makes often comes down to money—whether they choose to ignore that issue in dealing with major policy changes such as single-payer or not. If the legislature insists on new programs, then “Show Me the Money.” Continually raising taxes to fund new programs will come with consequences that could lead to economic stagnation and fleeing taxpayers.
If the legislature continues to plan on big spending and high taxes, then California may no longer be found (Eureka) but, in fact, would be lost.