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Simple Solution to California’s Anticipated $54 Billion Budget Deficit

The California Department of Finance recently projected that the state is facing a $54 billion deficit. There is hope for a bailout from the federal government.

Given the current political make-up of the national government, does anyone want to count on what should be viewed as the goodwill of reactionaries such as Senate Majority Leader Mitch McConnell and the great commander Trump? If any money is made available by them, wouldn’t it likely have many strings– actually–ropes used to strangle people, attached to it?

The California budget shortfall is largely resulting from the economic crisis set off by the virus, but long expected given the nature of capitalism. The shortfall will largely arise due to fewer people working and paying income taxes, declines in sales taxes, and other sources of state revenue.

Without a bailout, there are likely to be massive declines in spending on needed services and public education at a time when people will be needing and demanding more. The situation is an emergency.

What is not being put forward by California’s state leaders, dominated and controlled by the “alternative” party, the Democrats, is that the shortfall in revenue could easily be solved by imposing a wealth tax of 50% or more on the excessive wealth of many of the state’s super-wealthy.

A 50% tax on the wealth of just Larry Ellison, Mark Zuckerberg and Elon Musk would solve the deficit with tens of billions remaining. A quick google search puts their wealth at:[1]

Zuckerberg $68.2 billion

Ellison $67.4 billion

Musk $36.8 billion

An emergency wealth tax of 50% on these three individuals alone would come to $86.2 billion.[2] That would leave over $30 billion more than the estimate of California’s government deficit. That extra money could be used to house the homeless, guarantee everyone food and access to medical care, finally provide a proper level of funding for the state’s public colleges and schools, lift many, if not all, of the state’s residents out of poverty, and have funds to help out in case the state experiences another round of destructive fires and/or a major earthquake.

This type of tax should have no impact on the lifestyles of the super-wealthy. Recently, they appeared to be able to get by on “far less.” Zuckerberg’s wealth was put at $46 billion at the end of 2015 and “just” $4 billion in 2010, less than 6% of what it is today. In 2015, Musk’s wealth was estimated at $13.2 billion, not even half of what it is now. After the tax, the net worth of the super-wealthy would still be excessive.

Were the super-wealthy to object to such a tax to address the emergency, they would deserve to be scoffed at especially if they were to claim they cannot afford to pay it.

There would be an expected legal challenge over a wealth tax. One would hope that would generate a massive outcry. Any judge upholding such a challenge would hopefully be instantly mocked for demonstrating such a callous disregard for the interests and well-being of millions on behalf of a handful of modern-day robber barons.

To make certain an enacted wealth tax is paid, the government should impose draconian penalties of as much as 50% of the tax owed on one underreporting the size of their wealth in an attempt to avoid paying the tax. Heavy penalties would have to be levied on those fleeing the state or claiming to no longer be a California resident.

Some of the wealthy will, understandably, contend that at least some of their assets are not liquid, easily sold for cash. In that case, they should be allowed to pay the tax by turning over assets. The state could slowly liquidate the assets and also use them as collateral for borrowing money.

The question for California’s Democratic elected officials is which side of history do they want to be on in the current emergency—the side of a handful of multi-billionaires or the side of the people responsible for electing them who they claim to represent. Were they to choose the side of the latter, the California government would be viewed as a pathbreaker leading the way towards creating a more just world. Such an action could inspire not only the rest of the country, but much of the rest of the world.

Notes.

1) There is no agreed upon figure for the wealth of these three individuals. Amounts found for Ellison vary from $60.4 billion to $67.4 billion. This can partly be attributed to significant fluctuations in stock prices. During the last year, Oracle’s stock has ranged from $39.71 to $60.50, Facebook’s stock has been between $137 to $224 and Tesla’s stock has been as low as $177 and as high as $969.

2) There is much wealth held by the wealthiest 1%. According to the Federal Reserve Board, as of the end of December, the wealth of the wealthiest 1% stood at $36.8 trillion, presumably lower now, but still more than 500 times the size of California’s anticipated deficit.

Perhaps the state could also impose a similar tax on the growing private endowments of colleges. Stanford’s endowment was worth $27.7 billion as of October 2019, an amount $2.9 billion more than in 2017.

 

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Rick Baum teaches Political Science at City College of San Francisco. He is a member of AFT 2121.

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