Newsom bases its budget on a positive economic scenario – Orange County Register

The opening paragraphs of Governor Gavin Newsom’s 400-page “summary” of the new budget describe the supposedly great ways he plans to spend nearly $300 billion in the 2022-23 fiscal year.

These include what he clearly hopes will make a re-election year stand out and become one of his legacies — expanding state health insurance coverage to 100% of its nearly 40 million residents. residents of California by folding undocumented immigrants who are not eligible for federally funded care.

During a nearly three-hour press conference in which he demonstrated an extraordinary memory of his data, Newsom also touted new spending on five “existential threats” to California, including climate change, COVID-19, homelessness, cost of living and crime.

He says the new commitments are doable because of the tens of billions of dollars in unplanned taxes, much of which comes from the state’s highest-earning taxpayers, who are making huge profits from stocks and other investments.

The following pages of the budget summary explain why Newsom believes the economy as a whole, and especially the personal finances of the wealthy, will continue to pump billions of dollars into state coffers. for at least a few more years.

The pink scenario starts with the assumption that the COVID-19 pandemic, despite the dramatic increase by its omicron strain, will ease.

The budget states: “The public health situation is at the core of economic forecasting. “The forecast does not suggest the emergence of a disruptive variant, which could lead to a delayed return to pre-pandemic labor force participation, persistently high inflation and continued supply chain bottlenecks.”

The budget “projects that real GDP growth continues throughout the projection period and recovers to pre-pandemic levels of nonfarm employment by the end of 2022,” but adds, “Structural risks (non-pandemic) projections remain, including challenges of aging populations, reduced migration flows, lower birth rates, higher housing and cost of living, and rising inequality and stock market volatility”.

That last warning, “stock market volatility,” is the real potential driver. The top 1% of California taxpayers are providing at least 50% of their income from state income taxes, and their taxable income is largely tied to the stock market, which has been on the rise lately. thanks to the very low interest rates of the Federal Reserve System.

If interest rates were raised significantly to combat inflation, it would have a negative impact on the stock market and, in turn, on California income tax revenue.

With California having such a narrow revenue base for such a small number of high-income taxpayers, and whose taxable income is largely based on stocks and other investments of widely fluctuating value, everyone Long-term revenue estimates are all educational guesses at best.

It’s called “fluctuation,” a syndrome that has hit California’s budget more than once.