Newsom Feeling the Squeeze After Data Shows California's Chickens Have Come Home to Roost
After California Democratic Gov. Gavin Newsom defended his leadership of the nation’s most populous state to the hilt last week in a debate against Florida Republican GOP Gov. Ron DeSantis, new data projects a massive budget shortfall.
In a report published Thursday, California’s nonpartisan Legislative Analyst’s Office said, “Largely as a result of a severe revenue decline in 2022‑23, the state faces a serious budget deficit. Specifically, under the state’s current law and policy, we estimate the Legislature will need to solve a budget problem of $68 billion in the upcoming budget process.”
Part of the reason California was blindsided by the revenue shortfall is it decided to extend its tax filing deadline until mid-November due to catastrophic storms that hit the state last winter.
Additionally, The New York Times noted, “The state’s tax system is prone to wide swings because of a heavy reliance on the taxation of capital gains and the personal income of high earners. For those residents, a steep 2022 decline in the stock markets resulted in heavy losses, which translated into lower tax revenues in returns filed through last month.”
Further exacerbating California’s woes is the state’s already high cost of living was pushed much higher courtesy of President Joe Biden and other Washington Democrats’ inflationary policies.
The Federal Reserve’s response has been to raise interest rates to bring inflation down, which has resulted in the average monthly mortgage payments in the Golden State going from $3,500 to $5,400, the Legislative Analyst’s Office report pointed out.
As a result, the state’s economy took a downturn starting in the summer of 2022, causing the unemployment rate to increase from 3.8 percent to 4.8 percent, a full percentage point higher than the national average.
“The number of unemployed workers in California has risen nearly 200,000 since the summer of 2022,” the report said.
So policy matters, as evidenced by California’s economy faring worse than most states. And, unsurprisingly, people have been moving on out for greener pastures.
The New York Post reported that since 2021, a net 750,000 residents have left the state, spurred in part by the higher cost of living and the draconian COVID policies Newsom had in place during the pandemic.
Meanwhile, a net 450,000 people have moved into Republican-led Florida, the nation’s third-most-populous state, during the same time frame.
Newsom and DeSantis debated the issues of California’s population exodus and high tax rates during the Nov. 30 face-off on Fox News.
The Republican presidential candidate threw in a zinger when he mentioned one of Florida’s new transplants is from Newsom’s own family.
“Why would you leave California?” DeSantis said. “It’s got the best weather. Great natural beauty.”
“So, I was talking to a fella who had made the move from California to Florida, and he was telling me that Florida is much better governed, safer, better budget, lower taxes, all this stuff, and he’s really happy with the quality of life,” he said.
The governor said the man then paused and said, “And oh, by the way, I’m Gavin Newsom’s father-in-law.”
“Kenneth F. Siebel Jr. and Judith A. Siebel, parents of Newsom’s wife Jennifer Siebel and longtime California residents, became Florida residents in 2020 after purchasing a $3.3 million Naples home in March of that year, records show,” Fox News reported.
DeSantis went on to draw other distinctions between the states.
“We have a 50-year low in the crime rate. … In the last 10 years, we’ve had a 45 percent decline in homelessness. California’s had a 45 percent increase in homelessness,” he said.
Newsom defended his state’s policies, saying, “California has lower taxes, lower than 32 states, for working families and the middle class. Significantly lower taxes than places like Texas.”
The Florida governor countered, “How does an 8 percent sales tax help working people? That doesn’t help working people at all. They have the highest taxes in the nation. People flee to be able to save money, to get out of California.”
“California’s unemployment rate is 60 percent higher than Florida’s unemployment rate” of 2.8 percent, DeSantis added. “Why? Because it’s a command and control economy. They have a political agenda that they’re pursuing at the expense of the people.”
DeSantis surgically flays Newsom on taxes and the economy of Florida vs California. It’s a small clip, but it’s a microcosm of the whole debate. One guy who is admittedly a smooth talker with lots of pretty but empty words against a stone-cold assassin who knows his stuff. 🔥 pic.twitter.com/wdHuCcEexj
— Scott Morefield (@SKMorefield) December 1, 2023
The nonpartisan Tax Foundation ranks California as the 48th-worst state in total taxes, just above New York and New Jersey.
Meanwhile, Florida is the fourth best.
The Hoover Institute’s Lee Ohanian, who is also an economics professor at the University of California, Los Angeles, provided a more detailed comparison regarding the tax policies between the two states following the Fox News debate.
“Florida has no income tax, it has a combined state and local sales tax rate of 7 percent, a 5.5 percent corporate tax rate, a property tax rate of about 0.7 percent, and a gas tax of about 35 cents per gallon,” he wrote.
“In contrast, California’s income tax ranges from 1 to 13.3 percent, has a combined state and local sales tax rate of 8.8 percent, a corporate tax rate of 8.8 percent, a property tax rate of about 0.7 percent, and a gas tax of about 77 cents per gallon,” Ohanian added.
The old adage that former Presidents Ronald Reagan (who had been governor of California) and John Kennedy knew so well still holds: Higher tax rates don’t always mean higher tax revenues because of the negative impact that taxes can have on an economy.
California is learning the lesson in spades.
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