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California faces budget deficits of billions of dollars in the years ahead, as it struggles to recover from the coronavirus pandemic and the ensuing recession.
The State Senate took up a new plan Monday to raise income taxes on the richest people in California, as a way of erasing some of that red ink.
For more, we were joined on KCBS Radio’s "The State Of California" by Assemblymember David Chiu of San Francisco, one of those in favor of the measure.
It’s estimated it would probably generate $6 to $8 billion during coronavirus, closer to $8 billion each year after the pandemic. It’s estimated it would only impact 0.5% of the top tax filers. It’s about 70,000 individuals who are making at least $1 million a year, so 99.5% of all tax filers would not have to pay any additional taxes.
At this point, we have not made decisions on exactly where it would be spent. What I can tell you is the state just this year alone, we’ve had to balance an unprecedented $54 billion budget deficit. The need is so intense across the board, from housing and homelessness to our schools and education to childcare, our social services system. During this time of pandemic and recession and a very intense conversation about structural inequality, we really need this to ensure that we have some revenues during this enormous budget deficit to help everyone get through.
These are arguments that have been brought up in the past when we have debated other taxes on wealthy individuals. We have done it in the past and we did not see a mass exodus. California, we’re the fifth-largest economy in the world. People who want to live here and do business here, we think are going to continue to do that.
We don’t have a sense at this point, but obviously this is a conversation that needs to happen when there is so much pain and so many people are struggling to get by. One of the challenges we are facing is we’ve been hopeful the federal government in Washington, D.C. would be able to move forward (with) significant federal stimulus dollars to help us. California, we can’t print money. Washington can help us in this way, but they just haven’t to the degree with which we needed it to happen. The Trump administration and Donald Trump’s Republican allies have not been helpful to states like California. We’ve got to figure out our own solutions of how we make sure everybody is making it through this time period. Obviously, we look forward to additional conversations with the governor. I suspect things are going to get more challenging in the near future than better, unless there’s a vaccine that’s discovered in the next couple of months. We’re going to have to figure out new solutions and creative solutions. Given that we just balanced a $54 billion budget deficit and that we’re expecting future budget deficits, we need to do more.
In a recent poll, over 70% of Californians said they would support exactly this kind of revenue generating proposal. In part it’s because we know that if you are wealthy in this state, you have benefitted tremendously from our economy particularly in recent years, particularly because California has the fifth-largest economy in the world being driven by innovation, technology and real estate. We also know these are exactly the individuals that have benefitted from recent tax cuts that Donald Trump was able to get through Congress a couple years ago. What we’re asking for is people to pay their fair share and really do their part to make sure everyone gets through this time period.
I think there are all sorts of policies in our tax system where there are industries that have benefitted in the past that we think we need to take another look at. I’ll give an example. I have proposed for the last couple years that we close the tax breaks for individuals to own second or vacation homes. If you are fortunate enough to own a home, you get a tax break on your mortgage interest deduction. That is to the tune of billions of dollars a year. That’s appropriate. What almost all Californians would agree is that maybe you shouldn’t get a tax break on your second vacation home. That’s a quarter billion dollars a year that is going out to a very small group of Californians. That is an example of tax expenditures that we’re going to have to look at in the coming years as we’re trying to come out of this pandemic and come out of this recession.