Did John Doe Lead to California’s Budget Surplus?

Dan Waters, columnist for the Sacramento Bee, reports today that he’s been told that one individual paid the Franchise Tax Board $200 million in back taxes under California’s amnesty program last year.

An examination of California’s budget shows that the $200 million paid by Mr. (or Ms.) Doe represents 10% of California’s budget “reserve.” As Mr. Waters accurately notes, the top 3% (by income) taxpayers in California pay half of California’s personal income taxes. Waters notes that the tax revenues to the state are now largely determined by the capital gains of these taxpayers. And he’s right.

Furthermore, California has a structural budget deficit. The California Taxpayers Association pegs this at $5 billion. That’s a huge amount of money to overcome on an annual basis.

So with the legislature about to go into session, are we seeing proposals to fix this? Is the Governator proposing fixes? Do we hear from the Democrat majority in the State Senate or Assembly about this?


Instead, I’m reading about new projects, proposals that will take money. In other words, our legislative leaders haven’t learned a thing. Samuel Johnson put it well: “Whatever you make, spend less.”

Assuming that these new proposals pass (and if both Democrats and Republicans are pushing them, they will pass), then the structural deficit will grow. And the problem will get deeper. And taxes will go up.

However, what happens if the top taxpayers decide to move to, say, Nevada? Or they don’t cash in on their investments? This scenario may be frightening to the legislative leaders and the Governator, but I think that sooner or later—sooner if this path is followed—very high income taxpayers will say “enough is enough” and move to a lower tax state.

So we’ll see if California’s legislators and governor have learned anything about budgets. I’m not hopeful.

Leave a Reply