Tax revenues collapsing in CA as productive citizens flee, causing huge deficit in state finances
05/14/2024 // Cassie B. // Views

California Governor Gavin Newsom has been forced to slash his state's budget as tax revenues continue to be lower than expected as productive citizens flee the poorly run state and take their tax money with them.

In a span of just two years, California's $100 billion surplus has become a $73 billion deficit, which Newsom is blaming on reduced taxes from capital gains income and capital loss carryovers. He also identified “unexpected rain bombs” that prompted the IRS to extend its tax filing deadline for many Californians in 2023; those taxes turned out to be 22 percent lower than expected once they were finally collected.

To deal with this huge deficit, Newsom is making a number of cuts, including $6.7 billion that had been set aside for doctors who treat Medicare patients. They will also make nearly $95 million in savings by cutting off health care for thousands of disabled migrants in their homes, while $550 million that was earmarked for building new facilities at state schools has also been cut.

In total, he is proposing nearly $33 billion in cuts across the next two years, which includes an eight percent cut to the state's operations. Some believe, however, that these measures will do little to solve the problems that the state is currently facing. Republican State Senator Brian Dahle said that they are a “hollow gesture at best.”

He stated: "The governor's national ambitions have triggered a massive exodus of people and businesses creating an enormous revenue shortfall of personal and corporate income taxes. You can't have a good government without a strong private sector. Plain and simple, people are being priced out of California from bad policies and mismanagement."

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The California Policy Center reported that the Golden State’s total local and state government debt was $1.6 trillion in 2022 – representing roughly half of the state’s GDP – and it is likely much higher now.

The cost of nearly everything has been growing there. For example, minimum wage hikes have caused the cost of running a McDonald’s franchise location to rise by $250,000, while State Farm Insurance recently announced it will not be renewing policies on 42,000 businesses and 30,000 homes in the state.

The state is also leading the nation when it comes to unemployment, with figures from January 2024 listing it in the top spot among the states, with a rate of 5.7%, compared to the national average of 4.1%.

Liberal leaders and policies are pushing fed-up residents away

Although California remains the country's most populous state, it has been losing residents in droves as people become fed up with the liberal leaders of the state and those running many of its biggest cities. The Los Angeles Times reported that 30 percent of Californians surveyed said they were considering leaving because state laws and policies did not align with their political views. In April, figures showed that the state’s population dropped by more than 75,000 in a year and now sits below 39 million.

Many are fleeing for neighboring states such as Nevada, Arizona and Texas, and while this includes recent college graduates as well as residents of all income levels, the loss of its most productive citizens is responsible for much of its decline in tax revenue. Although some residents have said that politics were not a direct factor in their decision to leave, the effects of liberal policies in cities like San Francisco, such as rising crime rates and an increasing cost of living, have been prompting Californians to seek greener pastures.

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