The federal government isn’t the only one racking up billions of dollars – well, trillions, really – in debt.
Under the leadership of Governor Gavin Newsom, California has gone from a fiscally sound and strong economy to one that is following in the footsteps of Washington D.C., mired under mounds of debt. $31.5 billion to be exact.
It is estimated that the state’s budget deficit has grown by $9 billion since January alone.
These numbers are enough to give anyone whiplash considering this time last year, the state was wondering how to spend a record $97.5 billion surplus.
What caused a $128.5 billion swing?
Lost Revenues
California has one of the most progressive income taxes in the country, which includes taxes on capital gains (investments such as stocks). This means that those with more wealth are taxed more heavily than those with a lesser amount of income and provide a disproportionate amount of revenue for the fund. The top 1% of income earners in California paid nearly half of all personal income taxes in 2021.
Much of high net-worth individuals income relies upon capital gains, which are subject to the volatility of the market. While 2021 was a record setting year for the stock market and capital gains accounted for 11.3%, taxes on capital gains are not a reliable source of revenue.
The second biggest contributor to California’s general fund is corporate taxes. There is a flat 8.4% tax on gross taxable income of businesses and corporations doing business in California, excluding some types of businesses such as sole proprietors and partnerships.
The amount of high worth Californians that have fled the coastline of California, from San Diego to San Francisco, where most of the money in the state resides, took their income with them, and as a result, state revenue.
And many of those individuals, such as Elon Musk, didn’t leave their businesses behind. Tesla, Hewlett-Packard, and Oracle have all left the temperate west coast weather for the heat and humidity of Texas. Apparently, ideal weather is not enough of a reason to take a million-dollar hit on your business.
Related video: Gavin Newsom defends California’s economic record (FOX News)
