Ramping Up State Revenue Volatility in California

“Volatility is not our friend, it’s our enemy.” That was California Governor-elect Gavin Newsom last November, referring to state tax reality: The top one percent of earners provide about half the state’s income tax revenue, the largest source of funding for state government. This makes for high volatility during any economic downturn. Gov. Newsom knows this is a problem, but so far he has done nothing to address it.

The governor has made no move to lower California’s income and sales taxes, highest in the nation, and he has made no effort to compress the number of tax brackets. On the other hand, he has been a vocal supporter of new taxes, including a tax on drinking water. Governor Newsom is also targeting voter-approved Proposition 13, Californians’ only meaningful measure for tax limitation.

A ballot measure for 2020 will split commercial and residential properties, but Californians can have little doubt that the state’s ruling class wants the whole thing gone. State politicians are fond of a two-step process to get what they want. For example, the 2016 Proposition 57 barred prosecutors from direct filing of juvenile cases. The 2019 SB 1391 took that power away from judges as well. In similar style, if the 2020 measure passes, look for another to eliminate the rest of Proposition 13, which would empower steep hikes in property taxes.

In 1982, Californians passed Proposition 6, which prohibited estate taxes in the Golden State. That displeases state Sen. Scott Wiener, who has announced SB 378, which creates an estate tax with a minimum level of $3.5 million and $7 million for married couples. This measure could easily drive more high-earning entrepreneurs out of California, which would further increase volatility.

Meanwhile, Governor Newsom has made no move to trim waste, reduce bureaucracy, or make state government more accountable. As the Los Angeles Times reports, Newsom created a new office for a state surgeon general, a new advisor for emergency management, and requested 41 additional staffers. This was “more spending than any of his predecessors,” including Jerry Brown, who reduced the size of the governor’s office.

As Californians can say with confidence, bloated government, punitive taxes, and volatility are not our friend. They are our enemy.