Flush With Cash, California Set to Send Billions in Rebates to Taxpayers
Gov. Gavin Newsom on Monday announced a massive expansion of a state economic stimulus plan that could result in two-thirds of Californians receiving cash payments of at least $600.
Today’s announcement, framed by the governor as part of his “California Comeback Plan,” is a major expansion of a stimulus package Newsom signed into law in February that sent one-time payments of $600 to nearly 6 million low-income Californians.
According to the governor’s Department of Finance, households earning up to $75,000 in adjusted gross income will be eligible for the new round of stimulus checks.
Cash from the surging U.S. stock market, along with the $26 billion the state recently received from the $1.9 trillion federal American Rescue Plan, have flooded California’s coffers to a point that could not have been imagined when the COVID-19 pandemic began last year and the stock market tanked.
The announcement marks a stunning budgetary turnaround that comes as Newsom faces a statewide recall over criticism of his handling of the pandemic and as the pandemic-delayed deadline for filing income taxes is bearing down on taxpayers.
Just over a year ago, it appeared that California’s estimated $5.6 billion surplus was morphing into a $54 billion deficit thanks to the soaring costs of the pandemic and sinking revenues as unemployment spiked and businesses closed.
Since then the stock market has risen faster than an Elon Musk spaceship, with companies like Apple, Facebook and Tesla pumping out huge profits.
In addition, hundreds of companies have used the Wall Street surge to make Initial Public Offerings (IPOs) of their stock in hopes of riding the wave of investor optimism, minting hundreds of new millionaires in the process.
For a state like California, which gets half of its personal income tax revenue from the top 1% of earners, the upswing has created a sea of state revenue, which Newsom is announcing this week as a series of cash refunds and investments in programs like health care and education, as well as plans to address perennial state issues like wildfire prevention and economic inequities.
Despite the rising economic tide, not all boats have risen. In March, the state’s unemployment rate was pegged at a stubbornly high 8.3%, considerably north of the national rate, which now stands at 6.1%.
Newsom’s office said the governor will be holding daily press conferences up and down the state all week to announce details of his new spending plans. The media offensive is essentially a slow reveal of this Friday’s planned release of the “May Revise,” an annual update on the state revenue and spending plan.
The tsunami of tax revenue is also triggering a spending cap enacted by voters over four decades ago. The so-called 1979 Gann Limit, named for the Proposition 13-era anti-tax crusader Paul Gann, capped state spending at 1978-79 levels with adjustments for population growth and growth in personal income taxes. The last time it was triggered was 1986.
State revenues are now $16 billion over the Gann Limit, according to the state Department of Finance. By law, half of that money must be refunded to taxpayers and the rest must be spent on schools. Details on the additional school spending will come later this week.
As signs of soaring revenue have become clearer in recent weeks, some liberal policy advocates have been pushing Newsom to use the funds to fulfill liberal priorities such as expanding health care access.
But after months of unrelenting criticism by Republicans seeking to replace him in the recall, the economic turnaround gives Newsom an extraordinary opportunity to make the claim that his stewardship of the state has helped it emerge from the pandemic stronger than could ever have been imagined a year ago.
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