It is insulting to see how easy it is for politicians to use taxpayers’ money to their advantage, especially when their political situation is delicate and complex. The populist Gavin Newsom, governor of California, exemplifies this perfectly.
Crisis in the Golden State
California had a dramatic year: the pandemic hit the state’s healthcare system hard, even causing shortages of medical supplies at certain times. The economy was also affected. The unemployment rate is above 8%, poverty continues to grow, the housing crisis continues to worsen and, to make matters worse, millionaires are leaving the Golden State for red states such as Texas and Florida. The middle class is also migrating to other regions.
Thousands of businesses went bankrupt as a result of the pandemic crisis, the less favored social strata saw their average income drop, and insecurity is out of control in several of the most important counties.
It is no secret that California is one of the most progressive states not only in America, but on the planet. Not in vain is it the model state admired by the most radical Democrats in Washington. However, despite being a blue state, California’s Democratic governor faces a recall election process at the end of this year, and his strategy to overcome it is simple: take advantage of an unexpectedly large surplus by significantly increasing public spending with subsidies.
Basically, Newsom, in a move worthy of a Latin American political demagogue, wants to buy his acquittal with taxpayers’ money.
How does populist Gavin Newsom want to buy his acquittal?
While the California governor has a chance of winning the recall, he himself has accepted the risk of impeachment. Newsom’s popularity, which last year had good numbers at the start of the pandemic, plummeted completely.
Draconian health restrictions —while he was going to a party among friends— the war with parents to open schools, the rise in homicides and the homeless crisis are some of the reasons Newsom lost support.
But the Democrat had an ace up his sleeve; an unexpected one: an unprecedented out-of-context surplus.
Last Friday, the Democrat unveiled a $100,000,000 economic recovery plan. That money will come out of a surplus of just over $75,000,000,000 and federal aid of about $26,000,000,000.
How did California manage to post such a large surplus? First, the big technology companies had a good year despite the pandemic. The possibility of remote jobs gave them stability and the stock markets smiled on them. As a result, their revenues remained stable and even grew markedly; and since California has the highest tax rates in the country for millionaires, their revenues were not affected by the pandemic.
“California’s coffers are bulging thanks to the high-flying Silicon Valley, surging stock market and a large share of professionals who were able to continue working remotely during Covid-19,” reads Politico. “The state has a progressive income tax structure that leans heavily on top earners, allowing the state to enjoy record revenues despite widespread job losses in the travel and service industries that have kept California’s unemployment rate among the nation’s highest.”
In a Capradio article, which picks up on major statewide news, it is specific about how Newsom’s $100,000,000 plan will be spent.
For example, “Newsom’s latest proposal includes $12 billion to send $600 stimulus checks to Californians earning up to $75,000 a year who did not receive a check from the state’s first round of relief funds. People with dependents and undocumented residents will receive $500 extra. State officials estimate around two-thirds of Californians will receive payments.” In total, 2 out of 3 Californians will receive grants according to state officials.
These checks will likely mean a small relief for tight California families, however, these subsidies are unsustainable and counterproductive.
California was coming off a large fiscal deficit of over $50,000,000 million, a consequence of the first few months of the pandemic and high government spending. But just because you have a surplus in one year does not mean that the money should be spent in full; moreover, sending monthly checks will not, by any measure, solve the state’s structural problems.
When a government sends subsidies to its citizens without generating a healthy economic and social environment, improving commercial activity and quality of life, the only thing it is looking for is to buy votes with taxpayers’ money. In this case, it is the money of the wealthiest, who today are fleeing in terror to states like Texas and Florida.
What will happen when the wealthy want to leave the state and pay taxes elsewhere? Will government spending be reduced when this happens? By then will there be no more housing crisis and a healthy business environment for the lower-middle class? These are valid questions that few are asking in the face of this recovery plan presented by Newsom.
The governor, in his eagerness not to lose the recall, chooses to spend more on stimulus checks ($12,000,000) than on aid to small and medium sized businesses ($4,000,000) which may be more beneficial to California business activity.
Newsom also chooses to increase government spending to “combat the housing problem” as the number of Californians becoming homeless grows and the homeless crisis deepens. The problem is that his spending choice does not attack the root of the issue: state restrictions on building new buildings and housing to meet demand.
The housing shortage is a long-standing problem for Californians, and as public spending increased, so did the number of homeless.
Martin Litwak, an Argentine lawyer based in Miami who serves as an expert on estate planning and tax issues, told El American that the danger of this plan in California is its unsustainability.
“The big problem I see with the plan is that it is not sustainable. Just because you did exceptionally well in a pandemic year doesn’t mean you have to spend all the money. In any case, what the California authorities should do is to lower taxes so that, in years that are not so good, they can also generate a surplus by creating jobs while the private sector continues to invest.”Martin Litwak
Banana Republic Movement
In his plan Newsom is taking advantage of a circumstantial surplus and juicy federal government aid that is already being criticized by Republicans in Washington. With this he seeks to alleviate the popularity crisis and buy the exit ticket for all his political problems.
In Latin America it is customary for left-wing politicians (and also those who claim to be right-wing) to use taxpayers’ money, of whatever kind, to approve constant state handouts. However, they never solve the main conflicts in these countries: poverty, unemployment, insecurity and deficient basic services. In the end, citizens end up dependent on the government in a hostile context for economic development. Gavin Newsom looks like a politician from a “banana republic,” using Americans’ money to improve his popularity.