California’s $75.7 Billion Miracle — Six Major Implications
Author: Greg Valliere
May 11, 2021
DEFICIT AND SURPLUS FORECASTS are notoriously inaccurate — what better proof than in California? After the 2020 gloom and doom, most states are flush with cash as debate heats up over how to spend the windfall.
THE CALIFORNIA MIRACLE: The Golden State now expects a stunning $75.7 billion surplus thanks largely to strong stock market gains, Silicon Valley’s boom, and tax revenues that far exceed forecasts of just a year ago, when the state was projecting a $54 billion deficit. Six major implications:
1. Several other big states will soon announce huge surpluses. With the exception of a few tourism-dependent states like Nevada and Hawaii, most states will break even this year or report surprisingly large surpluses.
2. These states don’t need additional stimulus from Washington, but they’ll get it anyway. California, for example, will get about $26 billion in federal aid from recent covid aid. President Biden, who seems behind the curve on economic issues, wants more spending when it’s not necessary.
3. Nearly two-thirds of Californians will get more money — including undocumented illegal immigrants. Newsome proposes to send $600 checks to individuals and an additional $500 to families with dependents. This will be in addition to $300 weekly unemployment benefits from Washington and another few hundred in weekly checks from the state.
4. Reports of Newsom’s — and California’s — demise were greatly exaggerated. He’s riding a wave, as the state recovers and new Covid cases subside. Newsom will survive a recall vote and is still a player in national politics, as the state rebounds. He faces demands from the left to spend more on everything from education to rent relief, but tax cuts are mandated by state law with a surplus this huge, and a rainy day fund also will be part of the mix. California is back.
5. The employment crisis will continue: In addition to the $300 in weekly benefits,
many states also provide weekly benefits of roughly $300. The federal checks will expire in September, but until then the worker shortage will persist, with employers offering sign-up bonuses and passing along these costs to consumers. Inflation will surge.
6. How the state surpluses will affect Washington policy: The idea of more stimulus seems ridiculous, but talks will heat up this week on huge new spending. President Biden will meet tomorrow with the top four Congressional leaders, amid speculation that they could agree on at least $1 trillion in infrastructure spending.
AFTER APPEARING CLUELESS on the labor shortage, Biden proclaimed yesterday that individuals who refuse to accept job offers won’t get unemployment benefits. That was a concession to Republicans who think spending is out of control. They’re correct, but the Democrats see an opening for massive new spending — even though states like California don’t need the money.
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