California has a record budget surplus as wealthy taxpayers boom

Sacramento — Buoyed by the pandemic boom of the richest taxpayers, California expects to post a record surplus of $97.5 billion, Gov. Gavin Newsom said Friday, as he proposed a $300.6 billion government budget that was also a historic milestone.

“No other country in American history has seen a surplus as large as this,” Newsom said, explaining revisions to the spending he first proposed in January for the 12 months starting in July.

Once again, as California heads into its gubernatorial election, Mr. Newsom’s massive surplus is allowing money to be scattered across the state. Among the governor’s proposals: discounts for nearly all Californians to offset the effects of inflation, which is expected to exceed 7 percent in the state next year; Retention bonuses of up to $1,500 for healthcare workers; Expand health care, particularly for women who request an abortion; Three months of free public transportation; and registration of funding for each school pupil. California also had a large surplus last year as the governor avoided withdrawing Republican-led troops.

However, Mr. Newsom cautioned that government budget planners were “deeply aware” of the potential for an economic downturn. California’s progressive tax system is notorious for its volatility due to its reliance on capital gains taxes on investment income.

“What more caution do we need in terms of evidence from the past two weeks?” asked the governor. The S&P 500, a benchmark US stock index, is nearing a 20 percent drop since January, a threshold known as a bear market. Some other measures, including the Nasdaq Composite Index, which have been heavily weighted toward technology stocks, have already outperformed that index.

Slightly more than half of the surplus will go to a variety of budget reserves and debt repayments, with nearly all of the additional spending earmarked for one-time expenditures under the governor’s plan, which still needs to be approved by lawmakers.

Legislative leaders have generally supported the idea of ​​easing inflation, although the method is still a matter of negotiations. Some lawmakers are pushing for income-based cash rebates, while the governor is proposing to tie the exemption to car ownership because he says it will be faster and will cover residents whose federal aid is not taxed. Mr. Newsom’s Democratic colleagues control the legislature.

“People are feeling deep pressure and deep anxiety,” said Mr. Newsom. “You see that reflected in the recent gas prices which are now starting to rise again.”

In a statement, the interim chair of the state Senate, Tony J. Atkins, and the chair of the committee that oversees budgeting in the chamber, Senator Nancy Skinner, noted that the abortion funding plan, in particular, is in line with the Democrats’ legislative agenda and called the governor’s proposals “encouraging.” .

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