If anyone thought that the budget that the legislature just passed reflected any degree of fiscal responsibility, let us disabuse you of that notion. While other states balance their budgets, California is spiraling down the financial commode.
The state’s structural deficit is a chronic, multiyear imbalance of $20 billion to $35 billion annually because of overspending that outstrips population and inflation. Florida, in contrast, avoids chronic long-term deficits by maintaining a leaner, low-tax government structure.
What is even more incomprehensible is that California taxpayers have done far more than their share to address the problem by generating higher revenues every year. Despite this, elected leadership in the Capitol continues to pursue even higher taxes, to the tune of $14 billion.
The new “revenue enhancements” include a new tax on software and digital services that businesses use for payroll, accounting, scheduling, inventory management, and other day-to-day operations. As with all taxes on businesses, the costs will be passed on to consumers.
Another tax that will hit most Californians is an $8.85 monthly tax per member on both Medi-Cal managed care plans and commercial health insurance plans. The estimated hit for individuals and businesses is $1.5 billion, an increase of more than $400 per year for a family of four.
Although it is not a direct tax increase, the legislature broke a previous commitment to remove limits on certain long-standing business tax credits, including research and development credits that help California attract jobs and investment. Those limits will now remain in place, effectively increasing business taxes.
The drumbeat of negative news coming out of California has had a direct and measurable impact on the state’s demographics. A study of IRS data by the National Taxpayers Union Foundation found that California is losing a taxpayer roughly every minute, as states like Florida, Texas, and North Carolina attract new residents due to lower taxes and higher standards of living. The study notes the comparison with Florida, which gains a new taxpayer every 2 minutes and 9 seconds, and with Texas, which gains one every 2 minutes and 53 seconds.
According to the study, “The result has been a bonanza for Florida, which is now collecting $4 billion more per year for its budget. The states losing taxpayers at the fastest rate are California, New York, and Illinois.”
The rate of loss was calculated as: “California: every 1 minute and 44 seconds; New York: every 2 minutes and 23 seconds; Illinois: every 6 minutes and 4 seconds; Massachusetts: every 11 minutes and 38 seconds; New Jersey: every 14 minutes and 14 seconds.”
These one-party, socialist-leaning states are subject to unrelenting pressure from labor organizations for even higher tax increases to pay for their new spending demands.
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While the study on the exodus from high-tax states measured just the number of people moving, California has a unique problem that will cause exponentially more damage. Specifically, a ballot measure this November seeks to impose a first-in-the-nation “wealth tax,” initially targeting billionaires. The response from this elite group of taxpayers has been predictable: The mere threat of such a law has caused several to leave the state, which will deprive state coffers of billions in revenue these individuals, and their businesses, would otherwise contribute to the general fund.
Clearly, it’s not just the number of people who are leaving California, but who those individuals are that reveals the real threat to the state’s financial stability.
Professor Jonathan Turley, a frequent commentator on legal and political issues, had this to say about the NTUF study: “There is a common myth that the top five percent of this country do not ‘pay their fair share.’ However, putting that debate aside, the question is whether it will produce more revenue than it costs the state in the long run. As these politicians campaign on clipping the ‘fat cats’ who are not paying their fair share, many are likely to follow the exodus to lower tax states with greater fiscal discipline.”
Here in the Golden State, it is already happening.
Jon Coupal is president of the Howard Jarvis Taxpayers Association.