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DAN WALTERS: Newsom bases budget on rosy economic scenario | Opinion

The early section of the 400-page “Summary” of Governor Gavin Newsom’s new budget explains perhaps a great way he’s trying to spend nearly $ 300 billion in fiscal year 2022-23.

They include those that he explicitly wants to make a splash of the year of reelection and become one of his legacy.

Newsam also touts new spending on five “existing threats” to California, including climate change, COVID-19, homelessness, living expenses, and crime, at a nearly three-hour news conference that unveiled an astonishing memory of data. Did.

He said the new promise is feasible because of the unexpected tax of tens of billions of dollars from the state’s highest-income taxpayers who are making huge profits on stocks and other investments.

The back page of the budget overview explains why Newsom believes that the economy as a whole, especially the personal finances of the wealthy, will continue to send billions of dollars to the treasury for at least the next few years.

The rosy scenario begins with the assumption that the COVID-19 pandemic will decline despite a sharp surge due to its Omicron strain.

“Public health conditions are key to economic forecasts,” the budget declares. “This forecast does not anticipate the emergence of disruptive variants that could lead to delayed returns to pre-pandemic workforce participation, sustained high inflation, and continued supply chain bottlenecks. “

The budget “expects to continue real GDP growth throughout the forecast period and recover to pre-pandemic levels of non-agricultural employers by the end of 2022,” but “structurally (non-pandemic) to the forecast. Swing risk remains. Aging population, declining immigrant flow, lower birth rates, rising housing and living costs, widening inequality, fluctuations in the stock market. “

The final warning, “stock market volatility,” is a true potential kicker. The top 1% of California taxpayers provide at least 50% of the state’s income tax revenue, and taxable income is largely related to the stock market, which has surged recently, largely due to the very low interest rates of the Federal Reserve. I am.

If interest rates are raised significantly to combat inflation, it will have a negative impact on the stock market and thus on California’s income tax revenues.

Long-term income estimates are at best informed, as California has a very narrow income base for a relatively small number of high-income taxpayers, taxable income is rooted in equities and other investments, and its value fluctuates significantly. It’s a guess.

This is called “volatile” and is a syndrome that has repeatedly backfired on California’s budget.

“No one is naive about tax instability,” Newsom said Monday, arguing that prudent spending and reserve reserves would prevent the boom and bankruptcy that has plagued the state over the past few years. ..

His budget is “The state’s budget resilience is stronger than ever. Reserve reserves, eliminate budget debt, reduce severance debt, and continue to maintain a structurally balanced budget over the long term. The result of focusing on temporary spending on traditional investment. “

Expected reserves of $ 34.6 billion in budget are impressive, but a truly serious and long-term recession, such as the one that occurred 15 years ago, could quickly deplete them.

There is ongoing debate over whether revenue volatility should be curbed by reducing the state’s reliance on taxation on the rich, or by building large reserves. Under Newsom’s predecessor, Jerry Brown, the state chose the “Rainy Day Fund” approach, but it has not yet faced serious challenges.

Send an email to Dan Walters of Cal Matters dan@calmatters.org.. CalMatters is a non-partisan, non-profit journalism venture that aims to explain how the California State Capitol works and why it matters. For other columns by Walters, calmatters.org/dan-walters..

DAN WALTERS: Newsom bases budget on rosy economic scenario | Opinion Source link DAN WALTERS: Newsom bases budget on rosy economic scenario | Opinion

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