Taxes - Archive

Often I’m asked whether California could levy a wealth tax on individuals. My answer is that, absent persistent political pressure by taxpayer advocates, the political door in California is always open to all forms of tax increases, including a wealth tax.

Second quarter income tax estimates are due Monday, though the amount required in California is more than a quarter’s worth of estimated tax. That’s because during a past budget crisis the state imposed a requirement that taxpayers pay more than a quarter’s worth of estimated taxes for each of the first two quarters of the year. That budget crisis went away, but not the imposition on taxpayers.

Yesterday the Legislative Analyst’s Office (LAO) released its Multiyear Budget Outlook through fiscal year 2026-27, forecasting $52 billion of deficits over that period.

Two measures have qualified for the November ballot that if enacted would boost the state income tax rate nearly 20 percent.

A crypto billionaire who shelters his company from US taxes by housing it in the Bahamas is financing tax increase legislation in California.

We scratched our heads Friday when — despite a steep fall-off in the stock market and a first quarter contraction of the US economy — we learned the May Revision of the Governor’s Proposed Budget expects rosy tax revenues for the 2022-23 fiscal year commencing July 1. After reading the document, we learned how that happened:

Two social media and crypto executives are behind an initiative on the November ballot that would jeopardize steady funding for services financed by the General Fund and force state taxpayers to use after-tax dollars to fund what the sponsors and others like them could fund with pre-tax dollars.

Imagine you are responsible for projecting state tax revenues for the 2022-23 fiscal year commencing July 1. Here are some things you know:

Believe it or not, the ride-sharing company Lyft is sponsoring an initiative that would have taxpayers finance its fleets. Masquerading as a measure to address climate change and forest fires through additional taxpayer financing of electric vehicles, charging stations and fire suppression, the measure would add 1.75 percentage points to the state income tax rate — ie, a 13 percent increase in the top tax rate, already at 13.3 percent — applied to incomes of over $2 million per year.

Last year, California dramatically increased fire suppression spending to $1.5 billion.

Some GFC’ers have asked us about two tax increase measures potentially on the November ballot. After responding with our view that the state already generates sufficient revenue with which it produces poor value, we remind inquirers that GFC doesn’t compete in the ballot measure marketplace. While we have competitive edges in assembling the capped direct contributions on which legislators rely for financial support and in navigating legislative dynamics, we have no edges in assembling the uncapped independent contributions on which ballot measures rely or in navigating ballot measure dynamics.

The Service Employees International Union (SEIU), one of the largest recipients of government spending in California, has been putting the following questionnaire in front of candidates for the legislature:

Dear Legislators,

The 2020 Budget Act you enacted 11 months ago forecast the S&P 500 to be at 2,060 in the first quarter of 2021. But because the S&P 500 closed the quarter at nearly twice that level and CA tax revenues are correlated with stock markets, revenues are way ahead of forecast. When it comes to revenue projections, no state flies more blindly than California.

Dear Legislators,

24 months ago, California’s Department of Finance forecast $151.8 billion of revenues in 2022-23 from the three largest sources:

As usual, DOF’s latest Monthly Finance Bulletin is filled with data of relevance to your responsibilities:

Conventionally, Ronald Reagan is characterized as conservative, but as governor in 1968, he signed the Meyers-Milias-Brown Act that endowed police and other local public employees with the power to bargain collectively with the governments that employed them, thereby handing political power to employees who were the principal beneficiaries of government spending. Conventionally, Jerry Brown is characterized as liberal, but as governor in 1976, he signed the Uniform Determinate Sentencing Act that converted most sentences to mandatory-minimum periods specified by the state legislature, leading to an explosion of the state’s prison population. Today’s exaggerated convention is that California suffers from exploding employee costs because of domination by a single party. Not true. Both parties enabled and capitulated to public sector unions seeking ever-higher compensation and benefits.

Conventionally, Ronald Reagan is characterized as conservative. But as a first-term governor of California in 1968 (Reagan earned the job in 1966, denying Pat Brown a third gubernatorial term), he signed the Meyers-Milias-Brown Act, which endowed police and other local personnel with the power to bargain collectively with the governments that employed them, handing political power over local budgets to government employees who were the principal beneficiaries of those budgets.

Last year we spent as much time blocking tax increase proposals as liberating nurse practitioners. This year will be the same. Reform efforts will focus on OPEB and tenure but at least as much time will be devoted to blocking tax increases, bills to extend collective bargaining rights to legislative staff, and more.

On Taxes: Few things bother us more than folks who write us about an objectionable piece of legislation but don’t get in the trenches with us. Tax increases such as AB 2088, about which the WSJ has an opinion piece today, really get them going. GFC leads the efforts to kill such bills and to enact the fiscal and other reforms required to govern CA well but we have only as much power as you give us. So here’s some tough love for anyone reading this who is not already a financial supporter: Either get in the war or leave us alone. In January, we will send a slate of 16 GFC Courage Committee chapters to which one will be able to donate up to $8,100 per chapter per year. Money managers subject to SEC Pay to Play rules who cannot make political donations may make non-political donations at anytime here towards operating costs (ie, lawyers, lobbyists, staff*, etc) running >$1mm per year and en route to $2mm.

CA State Assemblymembers David Chiu and Luz Rivas were early supporters of our nurse practitioner bill, helped stop a bill targeting Teach For America, are potential supporters of retirement and education reforms, and are better for GFC than Sanders-backed opponents in their left-leaning districts. But also they co-authored a noxious tax increase bill that GFC is leading the effort to defeat. Should GFC never again provide support to them?

No sooner had the California Legislature convened yesterday than a bill was introduced to increase taxes again to raise $2.4 billion per year. But there’s already an extra $2.4 billion in the state budget.

October General Fund tax revenues came in 37 percent above the 2020–21 Budget Act forecast, according to the latest Finance Bulletin from the California Department of Finance. Revenues through the first four months of the current fiscal year now exceed forecast revenues by $11 billion.

We are eager for January 4 to arrive as that’s when the California Legislature reconvenes. All Californians need attention but two groups in particular — blue collar workers and families with kids in public schools — are in special need of attention.

A recent article in the New York Times about election results in California included the following sentence (italics added by me): “A measure that would have raised taxes on commercial landlords to raise billions for a state that sorely needs revenue also seemed on track for defeat.” The reporters did not provide support for their assertion — which they expressed as a fact — that California “sorely needs revenue.” They should do so. Meanwhile, here are six potentially relevant facts (sources in parentheses).

According to the October Finance Bulletin issued by the Department of Finance, California’s tax revenues in September were 43 percent greater than forecast by the 2020–21 Budget Act enacted in June. Revenues for the first three months of the current fiscal year are now $8.7 billion greater than forecast. That’s good news for programs worried about funding cuts.

Recently we came across an erroneous reference in the press to California’s tax receipts. The Department of Finance issues monthly reports, the latest of which may be found here and shows tax receipts running well ahead of forecasts. DOF also tracks state unemployment, which is running well above national unemployment. GFC is keeping a sharp eye on both measures, as well as on unemployment claims processing.

In 2012 California raised the state’s top income tax rate nearly 30 percent to 13.3 percent to boost education funding. Proposition 98 spending on K-12 jumped accordingly:

Illinoisans should learn from the Golden State’s “fair tax” failure, lessons that state leaders ignore.

As Illinoisans inch closer to the 2020 election, California offers a warning about what happens when politicians promise a progressive income tax can fix a state’s problems.

Imagine you are a donor to a non-profit organization whose board members receive gifts from employees to whom the board, without your consent, promises retirement benefits. Now the organization is asking you for larger donations to cover surging retirement spending but not disclosing the real reason more money is needed.

Here’s another way to look at the complicated question of California’s commitment to public education in these flush economic times, with some compelling illustration of the state’s finances. And an unsettling conclusion: more and more tax increases will be the Golden State’s fate unless lawmakers get serious about reforming two large portions of California’s budget—K–12 schools and Medi-Cal, which account for more than one-half of California’s General Fund spending.

Proposals to increase federal taxes are very much in the national news lately. Some of the proposals are designed to expand programs but many are about income or wealth redistribution. In contrast, tax increases at the state level of government are usually about expanding programs or addressing deficits. That’s because states provide ~90 percent of domestic government services and have balanced budget requirements while the federal government provides few services and isn’t required to balance its budget.

Retirees subsidized at expense of active teachers.

School funding in California is at record levels…

General Fund tax revenues in Governor Jerry Brown’s proposed budget for 2018–19 are expected to be 32 percent higher than ten years ago yet the same budget proposes only 9 percent more spending for California State University than ten years ago.

Inevitable unless the Big Diversion is ended.

Jerry Brown’s budget for 2018–19 predicts revenues will be 32 percent greater than ten years ago yet that same budget proposes 14 percent less for the Judicial Branch and only 8 percent more for the University of California.

In June San Francisco’s school board wants voters to approve a new “parcel tax” of $298 per parcel of real property. They claim the money — $50 million per year — is needed to provide teachers with living wages. That’s a worthy objective but it’s not the real reason behind the proposed tax. The real reason is buried deep in SFUSD financial reports from 2012 and 2017:

Still not walking his talk.

State Assembly Member Tony Thurmond has proposed legislation imposing a tax on private prisons in California to help fund early education. Early education is great but levying a tax on private prisons would generate next to no money for it. That’s because only 1.5% — less than $200 million — of California’s $12 billion of prison spending goes to private prison facility owners or operators.