The state of California seems to be circling the drain. Why do I say that? … actually there are multiple reasons why I am led to this conclusion.
First: California’s deficit is immense.
From California’s Legislative Budget Office:
California Faces a $68 Billion Deficit. 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.
Second, businesses are leaving California in droves, and Sacramento is either unaware of what’s happening or has chosen to ignore it.
– Chief Executive Magazine reports annually on the Best and Worst States for Business. Predictably, in their Best and Worst of 2023, California is ranked number #50 – again.
CEOs have solidified opinions about the welcoming top states, their assessment of the worst has ossified: No. 47 New Jersey, No. 48 Illinois, No. 49 New York and No. 50 California remain the same as in the 2022 survey.
What should be obvious is that when businesses leave, the employees go with them. These employees not only pay state income taxes, but also property taxes. This paying of taxes then cascades down to sales taxes, and so what looks initially to be the innocent movement of a small company turns into a big megillah as taxes are the revenue source for the state.
In addition, individuals, not affiliated with businesses are also leaving the state. Although the reasons are multi factorial, high taxes are high on the list. I personally know four individuals who have fled California for other locales (Florida, Missouri, Colorado, Nevada, and Tennessee). These individuals are all in one of the higher tax brackets, poof! … they are gone!
More than half of states have cut tax rates in the last two years, according to the Tax Foundation. This has set off big regional competitions. Colorado, for instance, adopted a 4.4 percent top rate on income, and Arizona slashed its rate to 2.5 percent, leapfrogging the rate cut to 5 percent that Utah adopted five years ago.
California’s income tax rate has been 13.3% for a decade, but effective January 1, 2024, the new top rate is an eye-watering 14.4%, Forbes reports.
Are you getting the picture? Sacramento certainly isn’t, and consequently the circling of the fiscal disaster drain just continues!
2/2/24