California budget: More than $2B in new taxes even with $21B surplus?
Gov. Gavin Newsom is in an enviable position: a record surplus of $21.5 billion in his first proposed budget.
But as his plan moves toward the June 15 deadline for approval by a friendly Legislature dominated by his fellow Democrats, Republicans and taxpayer advocates are pushing back against what they say are more than $2 billion in new taxes and other levies tucked within the voluminous document.
“Despite a budget surplus of $22 billion,” the governor is asking for billions in new taxes, said Senate Republican Leader Shannon Grove, R-Bakersfield. “California is already unaffordable for too many people.”
The bulk of that revenue comes from $1.7 billion in “tax conformity” proposals to align California’s tax rules with the major changes made to the federal tax code by President Trump and Republicans in Congress in late 2017.
The budget also includes $300 million from a health insurance mandate — a tax penalty aimed at keeping insurance premiums in check by spurring the healthy who spurn coverage into buying a plan — and $200 million from a revised tax to bolster the 911 emergency system, Grove said.
Another Newsom proposal to raise $200 million from taxes on water bills, milk and fertilizer to fix contaminated drinking water systems in disadvantaged communities around the state died in a legislative committee over the weekend.
Kevin Liao, a spokesman for Assembly Speaker Anthony Rendon, countered that much of the surplus goes toward bolstering budget reserves and paying down debt and pension liabilities so the state can better weather an eventual economic downturn. He said the criticism is premature with the budget still in final negotiations over the next week.
“It’s not that there’s a ton of new ongoing spending being proposed,” Liao said. “A lot of it is one-time spending.”
Department of Finance spokesman H.D. Palmer quibbled with the characterization of some of those measures as taxes, which require a twothirds vote for approval. He said the Legislative Counsel concluded a third of the dozen measures in the tax conformity package can be approved on a simple majority vote.
Palmer said he expects the Legislative Counsel to make a similar finding on the health insurance mandate, though he conceded the proposed 911 measure will require twothirds votes.
The budget surplus and tax talk are in stark contrast to the situation former Gov. Jerry Brown confronted when he took office in 2011. Brown faced a $26.6 billion deficit. He resisted the Legislature’s call for new taxes, and the approved budget included some $15 billion in cuts. Brown later won voter approval for new taxes and, along with the improving economy, the state’s finances turned around.
Democrats now have enough votes to pass taxes over GOP opposition. Though Newsom cautioned about the threat of another recession, for now the state’s coffers are overflowing.
Newsom’s budget described the tax conformity package, which would include “flexibility for small businesses, capital gains deferrals and exclusions for Opportunity Zones and limitations on fringe benefit deductions,” among other measures, as “beneficial to California.” Those proposals have not been agreed on by the legislature and are expected to be debated in the coming days. The governor wants to use the revenue to pay for an expansion of tax credits for low-income Californians.
Some taxpayer advocates have withheld criticism on the conformity proposals for now, which they say offer potential benefits in simplification for taxpayers.
“The conformity package is intended to be tax neutral — meaning the overall effect is that it does not increase taxes or decrease taxes on taxpayers in the aggregate,” said California Taxpayers Association President Rob Gutierrez.