California’s wealthy elite are doing very well during the coronavirus pandemic, despite economic shutdowns that have devastated small businesses and caused widespread job losses and disruption. The Associated Press recently reported: By the end of 2020, California had lost a record 1.6 million jobs during the pandemic. Almost half a million people have even given up trying to look for work. Commercial properties have seen their value drop by more than 30%. With the pandemic forcing the closure of bars, restaurants, theme parks, sporting events and small businesses, low-wage workers suffered the brunt of the losses while the wealthiest worked from home.
But the economic losses started at the bottom of the income scale and so far have not made it to the top. While the rich are doing well, thanks to the growing dominance of Silicon Valley, the rising stock market, and the health of the Hollywood streaming entertainment industry for a nation at home, state revenues far exceeded expectations.
According to an Associated Press report: California’s bank account is overflowing. In January, the state’s tax revenue was $ 10.5 billion ahead of projections. By the end of the fiscal year on July 1, Governor Gavin Newsom and the state legislature could have a surplus of $ 19 billion to spend.
It’s so much money that, for only the second time, the state is expected to trigger state law requiring the government to send refunds to taxpayers.
According to the AP, state tax revenues have increased because California’s tax code relies heavily on the wealthy. What’s more, billions of dollars from the federal government, which paid for things like hotel rooms for the homeless and home-delivered meals for the elderly, also softened the blow.
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Unlike most states, California taxes capital gains – primarily money from investments and stocks – in the same way as money from wages and salaries. The result is that 1 percent of the population accounts for almost half of state income tax collections.
This 1% had a pretty good year in 2020, financially speaking. The stock market is 16% above its pre-pandemic peak in February 2020. A slew of California tech companies, led by Airbnb and DoorDash, debuted on the stock exchange last year, adding to the population of millionaires and billionaires of the state.
The Newsom administration projects Californians to earn $ 185 billion in capital gains – the highest ever – resulting in $ 18.5 billion in tax revenue for the state.
Given that, it seems utterly unnecessary for California to get $ 42.3 billion, more than any other state, in aid under the latest COVID spending bill. According to a USA Today analysis, California, Texas and New York would receive 29% of the $ 350 billion in direct aid President Joe Biden proposed for states and cities in his COVID-19 bill.
U.S. Vice President of Public Policy for Limited Government Robert Romano said it didn’t make sense for Congress to give California a massive bailout given the projected $ 19 billion surplus in the State for 2021.
“The Biden-Pelosi-Schumer state bailout will give $ 350 billion to bail out state and local governments, plus $ 128 billion from K-12 schools to reopen schools and $ 39.6 billion to dollars to colleges and universities, which all exceed $ 150 billion for the state. and local governments have already benefited from the CARES 2020 law and the $ 82 billion for schools that were just adopted in December, ”said Romano.
“Once Biden is completed, total COVID pandemic spending for 2020 and 2021 will have exceeded $ 5 trillion, more than the inflation-adjusted New Deal, the 2008 Distressed Assets Relief Program, and the Obama stimulus from 2009 reunited. “
According to USA Today analysis, three in five dollars (60.4%) of the direct aid provided for in Biden’s bill would go to states Biden won in the November election. It looks like the COVID spending bill may be more focused on a Democratic election campaign for the 2024 election than on areas of need.
Catherine Mortensen is Vice President of Communications at Americans for Limited Government.