California Governor Jerry Brown will release his final state budget tomorrow for the 2018-2019 fiscal year which will include, for the first time, tax revenue from weed sales. As Reuters notes this morning, Brown and state lawmakers have ‘high’ expectations for the new revenue stream which is expected to reach $1 billion over the next couple of years. Meanwhile, if the estimates are even directionally accurate, the pot tax will be the largest “sin tax” collected in California at over 2.5x the revenue collected from the sale of booze (chart below per the 2017-2018 California budget).
Brown’s final budget is expected to show a $7.5 billion surplus on roughly $125 billion in annual expenditures…
The estimated budget surplus of $7.5 billion is a far cry from the $27 billion hole that was projected as Brown took the reins for his third term in January 2011. He had previously served as governor from 1975 to 1983.
For the current fiscal year, the state budget topped $125 billion in general fund spending and nearing $200 billion when funds from the federal government, bond sales and other sources are considered, state records show. California has the sixth-largest economy in the world and is the most populous U.S. state, spending $53 billion from its general fund budget for K-12 education, $15 billion for state colleges and universities, and $35 billion for health and human services in fiscal year 2017-2018.
…which is primarily spent on education ($68 billion), Health and Human Services ($35 billion) and, of course, the state’s massive prison system ($11 billion).
Meanwhile, as the Sacramento Bee notes, Brown’s new budget will also reflect efforts to circumvent Trump’s new federal tax law by allowing California residents to report their state taxes as if they were “charitable contributions.”
Gov. Brown blasted the new tax law while Republicans advanced it, calling it “evil in the extreme.” He charged that the law favored corporations over low-income Americans and seemed to single out his state by striking a popular state and local tax deduction that some 6 million Californians claimed last year.
Brown could use his budget to strike back by signaling his intent to adjust California tax laws in a way that would let residents claim new deductions on the federal returns.
One proposal, already submitted in a bill by state Senate President Kevin de León, would let Californians report their state taxes as if they were charitable contributions, allowing residents to deduct those taxes on their IRS returns. Another more complicated idea floated by tax experts would have California shift its personal income tax to a different employer tax that businesses could deduct.
Of course, Cali democrats who are celebrating their surplus budget may want to take a step back and put the magnitude of their “accomplishment” into perspective…
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