As high tax rates on the wealthiest residents means he has more cash to fund liberal priorities, such as education and health care, California Governor Gavin Newsom said on Friday that his state has a record $97.5 billion operating surplus.
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The surplus is larger than the 2020 spending of every other state except New York and Texas. The windfall is what lawmakers can tap $49.2 billion for any purpose. That figure surpasses the $38 billion they had at their disposal during the previous budget season, which was considered the biggest.
Newsom, a first-term Democrat who wants to re-elect this year, said he has a $227.4 billion budget for the next fiscal year beginning in July.
While billionaires like Elon Musk have hated California s high taxes as they decamped to low-tax states such as Texas, the progressive tax system rakes in more revenue when income rises for its wealthiest residents. The benefits of rising stock prices and stable employment have been reaped by the group even as many lower-income workers lost their jobs due to the pandemic. California expects to collect $291 billion for capital gains realizations in the year 2021, according to budget documents.
Newsom said it was a sign of how well a number of people are doing in this economy. I am proud of California's progressive tax system and we are beneficiaries of that. The lopsided tax structure, in which the top 1% of earners pay more than half of their income-tax collections, sets the state up for revenue to fall badly in an economic downturn. Capital gains as a share of the personal income collection are at levels that were never seen before the dot-com bust.
Newsom said he is aware of the possibility of a slowdown. More than 90% of the surplus would go to one-time spending items, he said. There are $37.1 billion of reserves, including constitutionally mandated deposits.
Newsom s spending plan also allocates billions of dollars to providing checks to residents to offset rising costs, subsidizing health care and fortifying the state's energy grid and responding to climate change.
Newsom also proposes paying off $3.5 billion of bonds early -- an idea presented by Wall Street -- and using cash instead of selling debt to finance some capital projects.
While Democrats have a supermajority in both legislative chambers, their priorities have often diverged from Newsom s. Lawmakers last month refused to act on the governor's request to delay an annual inflation-indexed fuel tax increase set for June, saying they saw pitfalls in the temporary move.
The budget must be approved by June 15 or forgo pay.
There is no $11.5 billion for every eligible registered vehicle owner, capped at two $400 checks per individual.
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