California’s economy, from its founding days of the gold rush to the “tech rush” of today, has been characterized by boom and bust cycles that swing more wildly than the rest of the country. One would hope that our state’s taxes are structured in a way to cushion the blows of those extreme highs and lows. Usually this means having a healthy dose of sales and property taxes to balance out the high volatility of personal income taxes. Thanks to the passage of Proposition 13 in 1978, however, and the public’s reluctance to increase sales taxes beyond brief spells (such as under Proposition 30, from 2013 through 2016), California has grown even more reliant on income taxes, its most volatile source of revenue.
Millions of middle class Californians run the risk of falling into poverty during the next recession, and the state can do more to make sure that government is there to provide assistance when we most need it. The state’s rainy day fund will help, but only temporarily. The state currently has about $18 billion in reserves and, if past recessions are any indication, these reserves will be depleted in a matter of months, as tax revenues fall and the need for social services soar. In order to have a more stable set of tax revenues, California needs to enact bolder tax reforms that bring in more sales and property tax revenues while still providing tax credits to help offset any increased tax burdens on low- and middle-income residents.