Fraudulent is the claim that California’s budget for 2013-2014 is balanced.
For the coming fiscal year, Gov. Jerry Brown, a Democrat, is predicting a surplus of $1.2 billion. The Legislative Analyst’s Office, an independent agency, says the surplus is $4.6 billion. Temporarily, the budget is balanced. However, the budget does not contain information about the huge sums of money that California owes.
The State Teacher’s Retirement System (STRS) wants $4.5 billion a year in extra money. STRS wants more funds to compensate for low returns on its investments. If STRS does not generate an annual return of 7.5% on its investment portfolio, California taxpayers have to make up the difference. Some state officials estimate that there are $64 billion in unfunded pension liabilities for teachers’ pensions.
California owes the federal government over $10 billion for unemployment insurance.
Dan Walters, a columnist for the Sacramento Bee, estimates that California’s total unfunded liabilities are between $500 billion and $1 trillion.
California desperately needs tax reform. Currently, the state is heavily dependent on revenue gained from personal income and capital gains taxes. For the last 18 months, various stock markets have shown gains, aiding California’s budget situation. If there were a stock market decline or a recession (or both), the state would have a deficit, not a surplus.
California should structure its tax system so that state income is not so dependent on the performance of stock markets and on high levels of employment.
California can encourage job growth by lowering the state’s sales tax, now the highest in the nation. The state also has the highest top personal income-tax bracket in the nation: 13.3%. California’s corporate income tax is the seventh highest in the nation.
With a huge tax burden, investment in new jobs, factories, and farms will fall short of potential, resulting in jobs going to other states or countries.