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About this blog: I am a native of Alameda County, grew up in Pleasanton and currently live in the house I grew up in that is more than 100 years old. I spent 39 years in the daily newspaper business and wrote a column for more than 25 years in add...  (More)

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Legislators and governor debate spending instead of saving

Uploaded: Jun 14, 2022
Sacramento legislators undoubtedly are taking a deep breath and celebrating today after meeting the voter-imposed June 15 deadline to pass a 2022-23 budget. It calls for spending $300 billion.
That’s likely not good news for most of us. Legislative leaders and the governor still have yet to agree on how to spend (save?) the $100 billion of revenues gushing into Sacramento above projections. They’re debating a variety of ways to send money back to residents to help with the soaring inflation and even more rapidly soaring energy prices. California pays the highest gasoline/diesel prices in the country as well as the highest electric rates thanks to the green initiatives imposed by Sacramento and the Biden Administration.
Economist Christopher Thornberg, who has compiled economic forecasts for the state and the East Bay for decades (East Bay Economic Development Alliance), has a simple directive: save it. He’s the founder of Beacon Economics and directs the Center for Economic Development and Forecasting at UC Riverside.
In an opinion piece published Monday by CalMatters, Thornberg, who called the housing bubble, points out just how fragile these seemingly good times are for Sacramento. He frames the debate between the Democrats (Republicans are irrelevant in Sacramento thanks to the Democrat super-majorities) about whether to expand social programs or to spend the money on capital projects and other one-time expenditures.
California’s taxation is based on extremely high extractions for wealthy people. As long as they’re doing well with companies going public, growing investments and general economic growth, the state does well.
Thornberg points out the temporary surplus is driven by the personal income taxes that typically make up 25% of revenue. Next year, it’s predicted to be two-thirds—screams abberation.
“Over the last two years, state income from capital gains taxes has been close to $250 billion, twice as high as ever before and four times the average. A record surplus is no surprise,” he wrote. “The last two periods of high capital gains occurred in the late 1990s and then again when the dot-com and subprime mortgage bubbles overheated the economy.
“When those markets crashed, so too did asset values and, of course, capital gains. Huge budget surpluses were followed by huge budget deficits. “
The times already are changing.
Did you see Wall Street enter recession territory Monday as a major selloff continues? That won’t mean investment gains—the market is now back to the level where it was when Biden was sworn in.
“The last two years might be best characterized as the “stimulus bubble era.” Yes, the pandemic was a tragic natural disaster, but it was a completely different kind of recession with few long-term consequences. A bit of economic help would have served the purpose fine, but instead, in today’s era of populist politics, the stimulus firehose was turned on. The $12 trillion in what was largely unnecessary federal stimulus has set the U.S. economy on fire.
“This is what is driving soaring federal as well as state tax revenues. But it can’t last,” he wrote.
His bottom line is to prepare for tough times. His view, incidentially, coincides exactly what with our personal financial planner said when we spoke with him last week.
Community.
What is it worth to you?

Comments

 +   9 people like this
Posted by Jeff Husted, a resident of San Ramon,
on Jun 14, 2022 at 9:56 am

Jeff Husted is a registered user.

There are a lot of potentially good uses for the surplus resources.

(1) Renew a statewide mental health program to mandatorily institutionalize homeless individuals suffering from mental illness.

(2) Offer sizable rebates to all California taxpayers.

(3) Issue another round of stimulus checks to all Californians (including undocumented immigrants who have jobs in California).

(4) Develop a comprehensive statewide training program to curtail police abuses towards people of color.

(5) Increase food stamp allotments to those who qualify for the program.

(6) Subsidize energy taxes so California consumers pay less.

(7) Use the resources to improve and expand state prisons.

The list goes on...


 +  Like this comment
Posted by Rich Buckley, a resident of Livermore,
on Jun 14, 2022 at 11:29 am

Rich Buckley is a registered user.

Adding to Jeff Husted's very admirable list of tax money uses, I would add one more use, A Publicly Owned Bank at the State Level. Web Link The Public Owned Bank idea is very controversial and has many structural problems which may not be possible to overcome.

It places California into the banking business. All tax revenues and fees paid to the State go first into the State of California Publicly Owned Bank (SoCPOB).

The fear is valid that the bank will quickly run off its rails and become just another political watering hole of financial corruption.... or maybe not, depending on how we agree to set it up and administer. There is only one example in the US.

$100-Billion is synchronistically inviting as all my rough feasibility estimates indicate that's about the initial start up needed for the bank.

FORKS IN THE ROAD TO ESTABLISHING A SoCPOB

1. Southern Cal will dominate all our Northern Cal benefits.

2. Corporate partners used to carry out public goals with be favored by the political party in office.

3. Big Banks fat on the rich milking of Californians will kill the political services of SoCPOB supporters.

4. Fear tactics that SoCPOB is only a California marijuana supported idea because marijuana is still a Federal Offense, has some truth. Banks won't serve marijuana growers.

I sense transparency of operations (standards far higher than how cities operate) and how public benefit projects that contract with the State are set up, and open checks and balances on political donation from contractor participants are not insurmountable. But boy I can hear the Bank minions attack this idea, and there will be much validity in the sea of created confusion and disinformation.


 +   5 people like this
Posted by Paul Wickersham, a resident of another community,
on Jun 14, 2022 at 11:37 am

Paul Wickersham is a registered user.

Contrary to what the Sacramento politicians want you to believe, the State of California has a sizable war chest filled with taxpayer money and much of it could go to more productive use.

Jeff Husted & Rich Buckley have illustrated some prime examples.

The state is not going broke nor will it ever be.


 +   1 person likes this
Posted by Sally Ridge, a resident of Danville,
on Jun 14, 2022 at 12:00 pm

Sally Ridge is a registered user.

"the stimulus firehose was turned on. The $12 trillion in what was largely unnecessary federal stimulus has set the U.S. economy on fire."

The $19 trillion borrowed from China to finance the Iraq-Afghanistan war still has an ongoing impact on our country's economy as does the costly military resources President Biden is sending to the Ukraine.

Better to spend that $12B towards Americans rather than on bush league countries that have nothing to offer the United States in return.


 +  Like this comment
Posted by Devonne Chandler, a resident of another community,
on Jun 14, 2022 at 12:58 pm

Devonne Chandler is a registered user.

The $31B paid out to fraudulent EDD (unemployment insurance) claims during the pandemic clearly shows that the state cannot manage its money properly.

As far as 'tough times' ahead, that is the story of life itself so why lose sleep over the inevitable?

Just put the money to good use (if possible) and move on.

Tomorrow is another day and besides, the State of California will never go broke.


 +   3 people like this
Posted by iceblocky, a resident of Alamo,
on Jun 16, 2022 at 6:48 am

iceblocky is a registered user.

Previous comments suggest we spend all the money and don't worry about the future, the state will never go broke. When recession hits, we have to borrow to meet expenses and at ever higher interest rates. More state debt means a lower credit rating and interest rates go even higher. Then we have to raise taxes even more to make our budget. Responsible families live within their means - why do we think CA should not?


 +  Like this comment
Posted by iceblocky, a resident of Alamo,
on Jun 16, 2022 at 6:48 am

iceblocky is a registered user.

Previous comments suggest we spend all the money and don't worry about the future, the state will never go broke. When recession hits, we have to borrow to meet expenses and at ever higher interest rates. More state debt means a lower credit rating and interest rates go even higher. Then we have to raise taxes even more to make our budget. Responsible families live within their means - why do we think CA should not?


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