During the Epidemic, however, California government tax revenues exceeded forecasts by $10.5 billion.
By the end of 2020, California will have lost a record 1.6 million jobs, nearly 500,000 people will be unable to find work, and commercial real estate values will have plummeted by more than 30% during the New Coronavirus (CCP) pandemic. But California’s government is flush with cash. As of January, California tax revenues were $10.5 billion higher than expected.
The Associated Press reports that Gov. Gavin Newsom expects Californians to receive $185 billion from capital gains, the highest ever, bringing $18.5 billion in tax revenue to California, and by the end of the fiscal year on July 1, Newsom and the state Legislature will have a $19 billion surplus to work with.
Usually when the economy is in the doldrums, it puts state governments in a bind, forcing them to cut back on funding, as was the case during the Great Recession a decade ago, when real estate collapsed, the stock market tanked and the rich lost a lot of money. But this Time, as restaurants, bars, theme parks, sporting events and small businesses close due to the epidemic, low-wage workers are bearing the brunt of the impact, while the wealthy are able to work from Home.
California relies heavily on the wealthy for its tax revenue. A year ago, the California Legislature decided that the epidemic was causing the same economic downturn as in the past, and they cut spending, raised corporate taxes, and used funds from the state’s “rainy day fund” reserve account.
Yet in the end, California revenues increased. And billions of dollars from the federal government have been used to pay for homeless hotel rooms and meals for seniors.
Chris Hoene, director of operations for the California Budget and Policy Center, said, “This is not a recession due to the recession, it’s an epidemic, and the two are different structural elements.”
Unlike other states, California taxes capital gains, primarily funds generated by investments and stocks, resulting in 1 percent of the population accounting for nearly half of the state’s total earned income.
That 1 percent is doing well in 2020. The stock market is 16 percent higher than it was before the February 2020 epidemic. A series of California tech companies, led by Airbnb and DoorDash, went public last year, increasing the number of wealthy people in the state.
California’s windfall means more spending can be added. Newsom signed off on $7.6 billion in spending last week, including more than $2 billion in grants on behalf of struggling small businesses and $600 one-time payments to nearly 5.7 million people, or about $3.6 billion.
Legislators said they plan to pass another $2.3 billion in corporate tax breaks in the coming weeks, bringing the state’s aid package to nearly $10 billion.
Despite California’s tax increases, the epidemic is bringing more costs. After months of distance learning, schools need more money to restart, which is a tricky issue.
While California’s population earning $60,000 a year or more has increased slightly, the employed population earning less than $27,000 a year has declined by nearly 30 percent, according to Opportunity Insights, a Harvard University economic tracker.
A recent study by the California Policy Lab shows that as of December, nearly 90 percent of the unemployed in California were certified to receive unemployment benefits, an increase from the beginning of the epidemic.
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