Following California Democratic Gov. Gavin Newsom’s vehement defense of his leadership of the nation’s most populous state in a debate against Florida Republican GOP Gov. Ron DeSantis last week, new data indicates a large budget gap.
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.”
Due in part to its decision to extend its tax reporting deadline to mid-November as a result of the devastating storms that ravaged the state last winter, California was unprepared for the income shortfall.
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.”
California’s already high cost of living has been driven far higher as a result of President Joe Biden and other Washington Democrats’ inflationary policies.
The Federal Reserve’s response has been to boost interest rates to reduce inflation, which has resulted in the average monthly mortgage payment in California increasing from $3,500 to $5,400, according to the Legislative Analyst’s Office study.
As a result, the state’s economy began to deteriorate in the summer of 2022, raising the unemployment rate from 3.8 percent to 4.8 percent, a full percentage point more than the national average.
“The number of unemployed workers in California has risen nearly 200,000 since the summer of 2022,” the report said.
As a result, policy matters, as proven by California’s economy performing worse than that of the majority of states. Unsurprisingly, people have been flocking to better pastures.
According to the New York Post, a net 750,000 residents have departed the state since 2021, driven in part by increasing living costs and Newsom’s severe COVID regulations during the pandemic.
During the same period, a net of 450,000 individuals moved into Republican-led Florida, the nation’s third-most populous state.
During their Fox News debate on Nov. 30, Newsom and DeSantis discussed California’s demographic flight and high tax rates.
When he mentioned that one of Florida’s new transplants hails from Newsom’s own family, the Republican presidential contender tossed in a zinger.
“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
According to the Neutral Tax Foundation, California is the 48th-worst state in terms of overall taxes, barely ahead of New York and New Jersey.
Meanwhile, Florida ranks fourth.
Following the Fox News debate, Lee Ohanian of the Hoover Institute, who is also an economics professor at the University of California, Los Angeles, gave a more extensive analysis of the two states’ tax policies.
“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 saying that previous Presidents Ronald Reagan (who was governor of California at the time) and John F. Kennedy were well aware of still holds true: higher tax rates do not automatically imply larger tax revenues because of the detrimental impact that taxes can have on an economy.
California is learning the hard way.
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