Gov. Gavin Newsom has proposed new taxes and fees to fund health care subsidies, clean drinking water and tax credits for low-income families.
But state revenue outpacing even his most optimistic predictions could present a challenge for him as he attempts to raise taxes.
In April, corporate taxes came in at $3.4 billion, much higher than the Newsom administration’s estimated $2.6 billion. Income taxes also came in ahead of projections, making up for a shortfall earlier in the year, according to the Legislative Analyst’s Office.
If the trend continues, the state is looking at another big surplus this year.
In his January budget proposal, Newsom called for several new fees on Californians:
• A penalty for people who don’t buy insurance, called the individual mandate, to help pay for middle-income Californians.
• A tax on businesses to fund a big increase to the earned income tax credit for low-income families.
• Taxes on water, fertilizer and dairy to clean up drinking water.
He has also endorsed two other expensive proposals that could require additional revenue:
• A revamp of the 911 system that would be funded by a phone tax.
• Six months of paid family leave for newborns, an expansion to a program currently funded by a payroll tax.
Newsom is expected to release an updated budget proposal, the May revision. Lawmakers must send him a final budget to sign by June 15.
At least two of Newsom’s tax proposals would require approval from two-thirds of the Legislature. Theoretically, Democrats have the votes to enact new taxes with super majorities in both chambers.
But voting for tax increases has hurt vulnerable Democrats at the ballot box in the past, most recently with the 2018 recall of Sen. Josh Newman, after he voted to increase gas taxes.
“You have a newly elected class of Democrats from very moderate districts who are going to be hesitant to go up on a tax vote,” Steve Maviglio, a Democratic strategist working with supporters of the water tax said. “The ghost of Josh Newman still looms pretty large over the Legislature.”
The recent gas tax increase and the budget surplus could be used to attack lawmakers who vote to raise taxes even higher, said Democratic strategist Andrew Acosta.
Those in vulnerable seats will likely be wary of supporting tax increases that might fail in the opposite chamber or be vetoed by Newsom, he said. They’ll probably want assurances tax increases will pass the Legislature and be approved by the governor before they vote for them, he said.
Newsom has made it clear he wants to raise taxes on water, fertilizer and dairy products to clean up drinking water for roughly one million Californians.
Lawmakers, too, will likely have to pick and choose which taxes to support.
“It’s going to be a balance between courage and political risk on all these taxes,” Maviglio said. “It depends how much weight the governor puts behind the ones he wants to see the most.”
It’s great that the state may post another big surplus this year. But, in America’s long-held tradition, the money will be allotted by lawmakers who love to spend the enormous intake of cash provided by the hard working taxpayers, who are annually burdened by having to pay the state’s mountainous expenses.
The cautionary words above should serve as a warning that wild, unreasoned spending can lead to defeat in the next election.