Is California Headed For an Economic Downturn?

Just one month after Gov. Gavin Newsom and state lawmakers passed a record-breaking $308 billion budget, some economic signs in California are getting worse.

According to a report released Monday by the nonpartisan Legislative Analyst’s Office, which advises lawmakers on financial matters, it is more likely than not that California will bring in less from personal income, sales, and corporation taxes than the $210 billion assumed in the 2022-23 budget.

The report says, however, that there is still “significant uncertainty,” and the state could end up getting anywhere from $25 billion less than expected to as much as $15 billion more. Most likely, the state will get about $5 billion less than expected.

A recent report from the state Department of Finance gives a similarly mixed outlook. For the first time since the pandemic started in early 2020, California’s tax revenues in June fell short of projections instead of exceeding them. The amount of money brought in was about $2.4 billion less than expected. This was mostly because less money came in from the personal income tax.

H.D. Palmer, a finance department spokesperson, told me on Monday that more data is needed to make “long-term extrapolations,” but that the June numbers suggest that Californians who pay their taxes quarterly and make most of their money from capital gains and stock options see “a lot of clouds on the horizon” because of rising inflation and interest rates, problems with the supply chain that keeps coming back, and global market instability caused by Russia’s war on Ukraine.

Palmer said that the two reports show “how important the steps we’ve taken have been” to use California’s budget surplus “sensibly” by building up reserves and paying down debt instead of “starting a major expansion of state programs that may not be sustainable.”

He also said, “It’s something to keep in mind as we think about the last month of the legislative session and any major new financial commitments we might make.” There’s no doubt that the government is keeping an eye on this as we look at the legislation that’s moving.”

Newsom used California’s progressive tax structure to explain why he was against Proposition 30, a measure on the November ballot that would raise taxes on people making more than $2 million to pay for several climate programs.

Newsom: “California’s tax revenues are notoriously unstable, and this measure would make our state’s finances even more unstable, all so that special interests can benefit.”

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About Roman Martin

Roman Martin devoted a significant portion of his life to documenting his passions in print. This sustained him all the way through his master's degree program when he wrote and published a thesis on the semiotics and psychosis in two different horror video games. He has been a horror movie fan ever since he couldn't tie his shoes. Whether or whether he mastered the latter is still up for debate. He is perceptive enough to recognize an important occasion that most people overlooked. Experience roman was the shy kid who always chose to read a Stephen King novel instead of doing his homework. As a fan of the macabre, he preferred spending his time with fictitious characters to his fellow students at any academic level. Not much has changed in this regard, but he did meet his future wife online while playing video games, and they now share their lives with a Husky named Kiryu. roman has presented at the MAPACA pop culture academic conference and has written for Gamepur, Destructoid, Whatculture, and Bleacher Report. Before the end of the year, he hopes to have written his first script. Education roman attended East Stroudsburg University, where he earned both a bachelor's and a master's degree in English.
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