California state finances

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California is facing a $26.3 billion budget deficit for the 2009–2010 budget year.[1] While the legislative bodies appeared to address the problem in 2008 with the three-month delayed passage of a budget they in fact only postponed the deficit to 2009 and due to the late 2008 decline in the economy and the credit crisis the problem became urgent in November 2008.

California's tax system[edit]

California levies a 9.3 percent maximum variable rate income tax, with six tax brackets, collecting about $40 billion per year (representing approximately 51% of General Fund revenue and 40% of tax revenue overall in FY2007).[2] California has a state sales tax of 8.25%, which can total up to 10.75% with local sales tax included.[3] All real property is taxable annually, the tax based on the property's fair market value at the time of purchase or completion of new construction. Property tax increases are capped at 2% per year (see Proposition 13).

One potential problem is that a substantial portion of the state's income comes from income taxes on a small proportion of wealthy citizens. For example, it is estimated that in 2004 the richest 3% of state taxpayers (those with tax returns showing over $200,000 in yearly income) paid approximately 60% of state income taxes.[4] The taxable income of this population is highly dependent upon capital gains, which has been severely impacted by the stock market declines of this period. The governor has proposed a combination of extensive program cuts and tax increases to address this problem, but owing to longstanding problems in the legislature these proposals are likely to be difficult to pass as legislation.

California public spending[edit]

State spending increased from $56 billion in 1998 to $131 billion in 2008, and the state was facing a budget deficit of $40 billion in 2008.[5] California is facing another budget gap for 2010,[6] with $72 billion in debt.[7] California faces a massive and still-growing debt.[8]

[dated info] In June 2009 Gov. Arnold Schwarzenegger said "Our wallet is empty, our bank is closed and our credit is dried up."[9] He called for massive budget cuts of $24 billion, about 14 of the state's budget.[9] [10]

State debt and budget deficit[edit]

2012 brought somewhat of an improvement to state finances, though the state still faced a $16 billion budget deficit for the year. It is expected that California will be the first state to declare bankruptcy due to its financial problems. To help alleviate this, Governor Jerry Brown introduced proposals to bring measures to voters, in order to pass tax increases. If these are not passed, more severe cuts are expected. California's unemployment rate also fell, from a high above 12.4%, to below 11%, currently standing at around 10.7%.[11]


  1. ^ Yi, Matthew (July 2, 2009). "State's budget gap deepens $2 billion overnight". San Francisco Chronicle (Hearst Communications). p. A-1. Retrieved January 29, 2010. 
  2. ^ "California's Tax System: A Primer". Retrieved July 23, 2010. 
  3. ^ Equalization California Board of (July 2009). "Publication 71, California City and County Sales and Use Tax Rates, April 1, 2009 Edition" (PDF). Retrieved September 26, 2009. 
  4. ^ Pender, Kathleen (May 9, 2006). "Google's April surprise for state". San Francisco Chronicle (Hearst Communications). p. A-1. Retrieved January 29, 2010. 
  5. ^ Nunes, Devin (January 10, 2009). "California's Gold Rush Has Been Reversed". The Wall Street Journal (Dow Jones & Company). p. A9. Retrieved January 29, 2010. 
  6. ^ "California Makes Plea for U.S. Aid". The New York Times (The New York Times Company). Associated Press. February 6, 2010. p. A21. Retrieved February 7, 2010. 
  7. ^ Christie, Jim; Linnane, Ciara; Parry, John (June 19, 2009). Editing by Leslie Adler, ed. "Moody's warning on California debt stuns state". San Francisco: Thomson Reuters. Reuters. Retrieved February 7, 2010. 
  8. ^ "State of California Debt Clock"
  9. ^ a b "California's time is running out". San Francisco Chronicle (Hearst Communications). June 4, 2009. p. A-12. Retrieved January 29, 2010. 
  10. ^ "California's Greek Tragedy". The Wall Street Journal. March 13, 2012. 
  11. ^ Lopez, Ricardo (August 21, 2012), California economy gaining momentum, Wells Fargo report says, Los Angeles Times, retrieved 2013-01-05