Another Wise Move by Elon Musk

Spending other people's money makes him happy

I'm old enough to remember that a universal norm among State governments was to cut taxes whenever budget surpluses got too large. Spend what is necessary, went the thinking, then return the excess to the people who earned the money in the first place. There were eleven (11) states which recently enacted income tax reductions, by the way.

In the progressive state of California, that philosophy has been out of fashion for decades. California raises taxes "temporarily" to fund shortfalls, then thinks about ways to waste spend surpluses during flush times. [bold added]

The continued prosperity of California’s richest taxpayers is filling state coffers with a $97.5 billion surplus, bringing the state’s next budget to a record $300 billion, Gov. Gavin Newsom announced Friday.

It’s California’s largest budget and biggest surplus ever.

“No other state in American history has ever experienced a surplus as large as this,” Newsom said at a press conference in downtown Sacramento.

The surplus highlights the chasm between the rich and poor in California, which is both the nation’s wealthiest state and home to the highest share of residents living in poverty. The state taxes its richest residents and businesses heavily, meaning their prosperity through the pandemic has filled state coffers to the brim, even as millions of Californians struggle to afford groceries and gas as inflation drives prices up.

Newsom said he sees the high revenue not as a sign taxes should be lowered, but as evidence of that divide.

What the governor doesn't say is that the surplus is mostly due to the tremendous rise in the stock market and real estate sales through 2021. Capital gains tax receipts are volatile and cannot be relied upon as a steady source of funds. As of this writing the major stock market indices are down more than 20% for 2022, and real estate sales have slowed.

A secondary effect is that many of the wealthy taxpayers who do pay taxes are moving or have moved out of California. For example, Elon Musk alone is responsible for $billions of California taxes; he declared himself to be a Texas resident at the end of 2020 (residency rules are complicated, and it's likely that the Tesla billionaire will be taxed in California on most of his 2021 income, which exceeded $20 billion.)

What will happen next year when there's no surplus and California politicians don't want to cut the gargantuan $300 billion budget? We know the answer to that, so hold on to your wallets. Elon Musk was wise to get out.