California’s General Fund Relies on Bailouts and Billionaires

One of the biggest reasons California’s technology moguls supported the Biden/Harris candidacy had nothing to do with ideology. It had to do with their pocketbooks. Because with a Californian presiding over the Senate, and a Californian Speaker of the House, expect federal bailouts to flow west by the hundreds of billions.

The likelihood of federal money to prop up failing local governments, state agencies, and public employee pension funds has just gone from remote to probable, as Democrats take control of all three branches of the federal government later this month. Simultaneously, and as a result of this political outcome, the likelihood of massive new state taxes here in California targeting the super rich drops from probable to too-close-to-call.

Consider the impact of Assembly Bill 2088, if enacted, on California’s wealthiest households. This “wealth tax” will impose, year after year, an annual tax at a rate of 0.4 percent of any California resident’s worldwide net worth in excess of $30 million.

To use the example of California’s richest man, Elon Musk, who according to Forbes had a net worth in early January of $176 billion, AB 2088 would require Musk to pony up 704 million, every year, for the privilege of living in California. Mark Zuckerberg, with a current estimated net worth of $92 billion, would have to pay the state $368 million. Every year.

It is easy enough to understand the emotional indifference that a libertarian might display towards Musk getting soaked for $704 million […] Read More

How to Reduce the California State Budget by $40 Billion

As of a few days ago, high-wage earners have a new reason to leave California: their state income taxes are no longer deductible on their federal income tax returns.

Can California’s union-controlled state legislature adapt? Can they lower the top marginal tax rates to keep wealthy people from leaving California?

The short answer is, no, they cannot. They cannot conceive of the possibility that California’s current economic success is not because of their confiscatory policies, but in spite of them.

Earlier this year California’s union controlled legislature approved a gas tax increase that will increase state tax revenue by about $5.0 billion per year. Next in their sights is changing property taxes to a “split roll” system, whereby all commercial properties will no longer be protected from steep tax rate increases. Also under consideration is extending sales taxes to services, along with taxes on water, marijuana, and, who knows, maybe even robots.

These new taxes have attracted a lot of attention, but in reality California’s state government derives most of its tax revenue, 58%, from personal income tax. In recent years personal income taxes have contributed as much as 65% of the California state government’s total tax revenue. California’s top marginal income tax rate of 13.3% is by far the highest in the U.S. Oregon has the 2nd highest rate, at a much lower 9.9%. The impact of this can be seen on the chart depicted below, which is taken from the […] Read More