Newsom Freezes Spending and Wants Big Tax Increases
AENN
MOUNTAINTOPTIMES
MAY 03, 2024
The State of California facing an additional -$16 billion tax collection shortfall as of the April 15th tax deadline, passed a General Fund emergency spending freeze for all discretionary spending and now plans major tax increases for the most taxed state.
Governor Newsom claimed on March 31 that personal income tax (PIT) collections for FY 2023-24 year ending June 30 totaled $83.87 billion for FY 2023-24 ending June 30, were trending +$13 billion, or about +6%, above his January budget update.
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But the non-partisan Legislative Analyst Office (LAO) projected in early April that the final April 15th personal income “tax drop” could be down by -$5 billion. Coupled with the earlier -$6 billion shortfall in December and January, and sales tax tanking by -20%, the LAO warned that Newson’s FY 2023-24 budget deficit could expand by -$16 billion this year and another -9 billion for the 2024-205 budget beginning July 1st.
Budget Advisor to California Assembly Speaker Robert Rivas and the super-majority Democrat caucus Jason Sisney, warned on April 15th that dramatically higher personal income tax refunds, plummeting sales tax collections, and anemic corporation tax revenue had created a crisis demanding emergency action to slash spending.
Later the same day, the Assembly passed AB 106 as a revised budget that quietly included Section 74 to give Governor Newsom the power to take “early action” to freeze all state discretionary spending approved in the 2021, 2022, and 2023 budgets:
“Departments that received such appropriations shall immediately cease spending or encumbering these resources,” if they meet certain general criteria listed, the letter states. Only unallocated one-time funding items greater than $1 million are affected by the BL (bil). Affected departments are directed to “contact Finance (Department) to assess remaining funds and impacts of this BL.”
Newsom’s spokesman emphasized that with hundreds of billions of deficits projected by the LAO for the next few years, “continuation of one-time spending, when deemed necessary, draws down state reserves and uses “quasi-reserves” (such as borrowing and fund shifts) faster than would be the case in the absence of that one-time spending.”
Newsom’s budget staff and Siney warned Democrat legislators that the state had burnt through almost all the $97.5 billion it received from the Biden Administration bail-out during the COVID-19 pandemic, along with most of its “rainy day” fund reserves.
As a result, “to enlarge the pool of potential options” for Governor Newsom and the Legislature have to balance the FY 2024-2025 budget beginning in July would even more draconian spending freezes and huge across the board tax increases.
California already has the highest state individual income tax, with rates ranging from 1.00 percent to 13.30 percent, and the highest corporate income tax rate of 8.84 percent corporate income tax rate. California has a sales tax rate of 7.25 percent and la combined average state and local sales tax rate of 8.85 percent. California also has the highest gas tax rate in the nation at 77.90 cents per gallon. Furthermore, California has 18 additional tax categories for environmental and sin taxes.
