What’s $68 Billion and 1.1% Among Friends?

As the late Senator Everett Dirksen said, “A billion here, a billion there, and pretty soon you’re talking real money.”  California is staring at a $68 billion budget deficit.  Ouch.  California depends on personal income tax revenues for 65.9% of the budget–and on the top 1% for 50% of those revenues with the top 0.1% providing 33% of personal income tax revenues to the state.  Meanwhile, the middle class has been leaving California as fast as they can.  As Samuel Johnson said long ago, “Whatever you have, spend less.”

That’s the big issue in California: runaway spending.  What has the state legislature’s response been: Let’s increase tax rates!  Beginning in January, California’s top rate rises to 14.4% (from 13.3%); those in the middle class will see the rate rise from 9.3% to 10.4%.  This doesn’t sound like much, but if a family earns $100,000 a year they can save $1,100 by residing in no-tax Nevada.  The Greater Las Vegas Association of Realtors thanks California for their efforts in helping home sales in the Las Vegas metropolitan area!  And that 1.1% increase could easily increase another 0.4% (to a total of 1.5%).

Now, taxes aren’t everything (of course).  For businesses, regulations matter; California’s regulatory climate is abysmal.  “But Russ, there are a lot of people in California.”  Sure, but businesses that can move will.  I did twelve years ago; others are getting more and more reasons to do so.  The California legislature and Governor Newsom ignore this at their own peril.

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