Were his approved by lawmakers as is, the state would spend an unprecedented amount to fend off poverty, eviction and K-12 education loss for California鈥檚 most vulnerable residents in the 2021-22 fiscal year. And that would be funded, in part, by unparalleled tax revenues from the soaring income growth and stock market gains that the richest Californians enjoyed this year.
鈥淔olks at the top are doing pretty damn well,鈥� Newsom said Friday. 鈥淏ut I don鈥檛 begrudge that success, I admire and respect it.鈥�
The last recession led to a major dip in state tax revenue. This one is for only the second time in California history. Under the arcane cap known as the Gann Limit, the state can鈥檛 spend more tax revenue per Californian than it did in 1978, adjusted for inflation. Any state revenue over that cap must be split between investments in schools and rebates to taxpayers, which could pencil out to roughly $1.70 per person.
Two main factors drive the governor鈥檚 predictions of Gann-limit-busting revenue.
First, California鈥檚 tax system is considered in the country, meaning that state taxes take a bigger bite, as a percentage, out of wealthy Californians鈥� incomes and wealth gains than most other states and invest it in social programs. Depending on your fiscal attitude, you may view this form of income redistribution as a sign of California鈥檚 . Or you might see an on a tiny sliver of the population to fund social programs, while throttling economic growth.
Second, California鈥檚 top earners, largely tech moguls in the Bay Area, have made a killing during the pandemic. One in four American billionaires live in California. They gleaned about 40% of the wealth that U.S. billionaires added between Mar. 18 and Dec. 7, according to a CalMatters analysis of . In fact, the riches that California billionaires gained during those nine months could almost fund two years of state spending.
In a sense, the state鈥檚 progressive tax structure is doing exactly what it鈥檚 supposed to do: reap billions from the wealthiest to fund the state鈥檚 safety net 鈥� and that鈥檚 without a that some progressive lawmakers have rallied around and that Newsom definitively promised is But it reveals the deep irony of how a pandemic that has stripped , and has also helped fatten the pockets of California鈥檚 wealthiest and, thus, the state鈥檚 coffers.
While Newsom is asking that lawmakers vote to approve about $5 billion immediately 鈥� to help schools reopen safely, send , and keep small businesses afloat with loans 鈥� and another $6.5 billion this spring, lawmakers have until mid-June to negotiate a finalized budget before the the new fiscal year kicks off on July 1.
These five charts pulled from Newsom鈥檚 spending plan show how California鈥檚 wealth gap is getting worse:
This article is part of the California Divide, a collaboration among newsrooms examining income inequality and economic survival in California.