When running for president, are taxes or deficits worse?

from Dan WaltersCalMatters

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Gov. Gavin Newsom’s eighth and final state budget could be his toughest yet, as he tries to close a massive deficit offset reduction of federal funds and calms demands for more spending and new taxes.

Although the state’s revenue has been several billion dollars above projections recently, there is still a multibillion-dollar gap between projected revenue and outgoing spending as Newsom faces a mid-May review deadline initial budget for 2026-27 he released in January.

January’s $349 billion budget, which included $248 billion in general fund spending, was a no-brainer that sidestepped bigger issues.

The state has run general fund deficits over the past four years totaling $125 billion, according to the Legislature’s budget adviser, Gabe Petek. Newsom and lawmakers framed them with loans, accounting gimmicks, emergency fund transfers and other time-honored tactics to delay the day of fiscal reckoning.

The administration’s own projections show a $23 billion gap between revenue and spending in 2026-27 and similar gaps for the next two years if nothing is done. “Both our office and the administration expect the state to face multi-year deficits, with estimates ranging from $20 billion to $35 billion annually,” says Petek in his review.

The recent jump in revenue will improve the numbers slightly, but not enough to completely shut down what is being called a “structural deficit.”

Newsom has pledged to wipe out the current deficit and balance the state’s books after he leaves, possibly for a presidential campaign, and renewed that intent during a recent meeting with Assembly Democrats.

“My duty is also to have the back of the next governor and the next legislature,” Newsom said. according to Politico, adding that he will do whatever it takes, including cutting costs.

Newsom’s vow to cut the budget contradicts his record. Over the past seven budgets, revenue has increased by 60%, while total spending has jumped 72% from $203 billion in 2019-20 to $349 billion in the latest proposed budget.

Things started to go downhill in 2022, when Newsom boasted of a $97.5 billion surplus, saying “no state in American history has ever had a surplus as big as this,” leading to a sharp increase in spending. The surplus turned out to be a mirage based on a $165 billion error in revenue estimates over four years. The budget is there bleeding red ink since then.

Newsom can close chronic deficits by raising taxes, and that is the preferred remedy for many lawmakers and interest groups, especially labor unions.

Over the past four months, advocates have campaigned to increase spending on the ledger. School districts and their unions, for example, want Newsom to restore the $5.6 billion in deferred support for education, while city officials want to restore the $1 billion in annual support for homelessness that Newsom’s budget cut in half.

In addition, advocates for the poor want the state to fill gaps in health and social services programs created by cuts to federal support by President Donald Trump and the Republican-controlled Congress.

A budget framework released by the Democratic majority in the state Senate approves tax increases, specifically a payroll tax on large employers that would raise between $5 billion and $8 billion a year for health care.

Other tax increases are also proposed, such as a change in the way multinational corporations are taxedand two union-backed tax measures will be on the November ballot, including one highly controversial a tax on the wealth of state billionaires.

Newsom opposes raising taxes, but faces what could be a Hobson’s choice of his own making — whether to start his presidential campaign with California still facing deficits or having raised taxes.

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.