Touting a $4.2 billion California budget surplus for this fiscal year (July 2013 to June 2014), California Gov. Jerry Brown, a Democrat, is claiming to be some sort of a miracle man by turning California’s 2011 deficit of $25.4 billion into a surplus. Brown cited the surplus in his State of the State address earlier in January. The surplus is only imaginary.
California budget surplus v Reality
According veteran political columnist, Dan Walters of the Sacramento Bee, California has unfunded liabilities of between $500 billion and $1 trillion. These liabilities come from retirement and health-care promises to state workers.
The California Public Employees Retirement System (Calpers) promises a 7.5 percent investment return on funds invested for retired workers. (Until 2012, Calpers promised a 7.75 percent return.) In recent years, an investment has earned 5.5 percent per year.
In 2013, American stocks performed well. The Standard and Poor’s 500-stock index was up 29.5 percent. But what happens if the stock market performs poorly? If Calpers earns only 1 percent, the state’s taxpayers have to make up the difference, providing an extra 6.5 percentage points of money.
California’s tax system is heavily dependent on the performance of stock markets. Gov. Brown’s surplus is simply the result of a good years on Wall Street in 2012 and 2013. Without Wall Street’s great returns, which provide more taxable income for California’s wealthier residents, California would be running deficits.
Brown became governor in January 2011. Earlier, from 1975 to 1983, he served two terms as governor. When he left office in 1983, the state was heavily in debt.
Brown wants California to have a high-speed rail system, connecting Northern and Southern California. The estimated cost of the system is estimated to be $68 billion. Moreover, Brown wants $14 billion to spend on tunnels to send Northern California water south. Where will the money for trains and tunnels originate?
In November 2012, Brown pushed for passage of Proposition 30, which, once approved by the voters, raised the statewide sales tax one-quarter percentage point. In Concord, California, for example, the sales tax went from 8.75 percent to 9.0 percent.
Proposition 30 also gave California the nation’s top personal income-tax bracket: 13.3 percent. The prior top bracket of 12.3 percent was also the highest in the nation.
Brown ought to concentrate on economic growth for California. Currently, growth is not good because of the state’s overtaxation of the economy. California has the highest sales and gasoline taxes in the nation. The members of the State Legislature are the highest paid in the nation. And these overpaid legislators received a raise in December 2013.
The California budget surplus is illusory. What Brown ought to be doing is calling for tax reform — and tax reduction — so that the state’s revenue is not so heavily dependent on Wall Street and the income of wealthy residents.
Also, the governor could make California more investment friendly. With so many taxes, investors would rather put their money into state like Texas, where taxes on business are lower. After all, it’s investment that creates new jobs. People who doubt the value of more investment should visit Silicon Valley.