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Massive California Budget Surplus Could Prompt Tax Rebates Next Year

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California will have a $31 billion budget surplus next year, according to a new state forecast, due to soaring tax revenues. (Shutterstock)
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California will have a $31 billion budget surplus next year as revenues continue to climb despite the pandemic, according to a new forecast from the state’s independent Legislative Analyst’s Office.

The predicted surplus is so large the office estimates California will surge past a constitutional limit on state spending by more than $14 billion. That could require Gov. Gavin Newsom and state lawmakers to either cut taxes, spend more money on schools and infrastructure or — perhaps the more popular choice in an election year — give rebates to taxpayers.

Tax Collections Soar to Record Highs

California’s tax collections have continued to soar despite the pandemic. From April to June of this year, California businesses reported a record high $216.8 billion in taxable sales — a 38.8% increase over 2020 and a 17.4% increase over pre-pandemic 2019. This comes as some economists worry about rising prices because of inflation.

This would be the fourth year in a row of increasing revenue. But the LAO said it’s “impossible” to know whether California’s revenue gains are sustainable.

“Recognizing this, our main revenue forecast takes a middle ground of possibilities, assuming neither that the gains are entirely sustainable nor that they are entirely unsustainable,” the LAO wrote in its annual Fiscal Outlook.

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