California Tax Revenues Miss Projections By $1 Billion As Residents Flee The State

Tax revenues for the state of California have come in nearly a billion dollars below projections, which is causing Governor Jerry Brown to amend his $171 billion spending plan that was just proposed in January.

 

As Reuters reports, California's tax revenues came in $869 million less than forecast for the first four months of the year. Governor brown is now expected to cut some of the proposed spending increases in education, healthcare and infrastructure as a result of the miss.

"We had to adjust our fiscal plan to account for the fact that among other things April receipts were about a billion dollars below what the month's projections had been" said spokesman H.D. Palmer.

Many things were blamed for the shortfall, from slower than expected wage growth (there's a fix for that!), to lower capital gains taxes from a struggling market. While those were surely a factor, perhaps the biggest reason is the one that was also unmentioned: residents are fleeing the state in droves, with over 250,000 moving out of the state between 2013-2014 alone

Recall that based on a study of IRS tax returns, over 250,000 California residents moved out of the state between 2013-2014, and as we reported a month ago, one catalyst for this migration is also the most "unexpected" one: the unintended, adverse consequences of minimum wage increases.

"First, you have to raise prices, otherwise you'll be out of business," Marmalade Cafe owner Selwyn Yosslowitz said. So higher prices for diners. That's "first." We imagine you can guess what's "second." "We will try to re-engineer the labor force," Yosslowitz said. "Maybe try to reduce the number of bus boys and ask servers to bus tables." In other words: "Maybe" we'll fire some folks and the people who keep their jobs will have to be more efficient.

But the punchline is that when he signed California’s minimum wage hike, none other than Governor Brown was quoted as saying that "economically, minimum wages may not make sense."

To Brown's own shock, just one month later he finds he was absolutely correct. Alas, it is now impossible to do the one thing that "economically"
did make sense.

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