Gov. Gavin Newsom is proposing a nearly 9% increase in total state spending for the upcoming fiscal year – that’s a $350 billion budget, more than $8,800 per Californian. Yet, for unions and progressive politicians, this enormous sum is too austere.
They are calling on the state to backfill federal funding cuts while at the same time closing the state’s budget deficits. If fully implemented, this agenda would increase total state spending for the coming fiscal year by 18% compared to the current fiscal year.
Of course, the unions and progressive politicians claim there is no reason to be scared by the roughly $30 billion in additional taxes this would require. The state can costlessly fund all their pet programs by simply “taxing the rich.”
Taxing the rich may be a great tagline but it’s bad policy based on the misnomer that the rich don’t pay their fair share of taxes. To date, no one has provided an objective definition of “fair share’” but the top 1 percent of income earners, around 175,000 taxpayers, pay around half of the state’s total income tax revenue. The idea that they are paying less taxes than everyone else is simply false.
In practice, tax-the-rich schemes diminish economic vibrancy. California already has the highest personal income tax rate in the nation, the nation’s sixth highest corporate income tax rate, and now faces calls for a wealth tax.
Rather than focusing on empty slogans, Gov. Newsom and the Legislature should be asking whether the state budget is affordable and whether the state’s programs are effective.
If we define affordability as the burden of state spending relative to residents’ income, the current level of state spending is unaffordable.
State spending surged following the COVID pandemic and is now 54% higher compared to 2019. This exceeds the 40% cumulative growth in personal income that reflects the ability of Californians to cover those costs.
Had spending simply maintained its previous six-year growth rate of nearly 46%, Newsom would have proposed a $323 billion budget for the upcoming fiscal year. Had state spending only grown as fast as taxpayers’ income, the governor should have proposed a $309 billion budget. Therefore, had the governor just maintained the previous unaffordable savings levels, he could have saved between $26 billion and $40 billion.
All of this might be a moot point if taxpayers were getting their money’s worth, but they’re not. The state’s policy ineffectiveness is just as troubling.
Despite spending more money than most other states (adjusted for population size), California fails to provide quality public services to residents. Throwing more money at the same inept policies will not magically improve outcomes.
Future budgets can, and should, reduce spending and reform our spending approach to more effectively address the state’s many challenges.
Take education as an example. If implemented, Governor Newsom’s budget would increase spending to $27,418 per student. This level of spending is significantly more than what the average state spends. Yet California students score well below the national average on the Nation’s Report Card in both math and reading assessments. In fourth-grade reading skills, for instance, California ranked 37th among the states in 2024.
Not only does California perform poorly, but students in states such as Indiana and Tennessee, which spend significantly less per student, score much better (in this case 8th grade math competency).
Then there’s Mississippi, which has seen phenomenal improvements in education outcomes while spending much less than California.
These cases demonstrate that Californians can create a better education system for less. But this will only happen by embracing reforms.
Education is far from the only budget area where California overspends but underperforms. The budget proposal would also allocate $39 billion to reduce greenhouse gas emissions, including another $1 billion toward the state bullet train. Yet, residents are getting very little from all this spending.
Total greenhouse gas emissions peaked nationally and in California in 2007. Since that time, California’s emissions have declined 19%, which is less than the national decline of more than 20%. The high-speed rail project has been a boondoggle for years and by continuing to fund it, the state is simply throwing good money after bad.
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Regaining fiscal stability requires state leaders to impose fiscal discipline, implement policies that have a track record of being both affordable and effective, and recognize excessive spending comes with high costs. Given California’s dire fiscal state, the time to start is now.
Wayne Winegarden, Ph.D. is a Senior Fellow in Business and Economics at the Pacific Research Institute. He can be reached at [email protected]
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