Explaining Southern California's economy

California's budget: Hostage to the rich

California Budget

Rich Pedroncelli/AP

Gov. Jerry Brown discusses the cuts he has already made to help reduce the state's budget deficit from nearly $20 billion last year to a gap of about $9.2 billion as he unveiled his proposed $92.5 billion 2012-13 state budget at a Capitol news conference in Sacramento, Calif., Thursday, Jan. 5, 2012. California faces a smaller budget deficit in the coming fiscal year but will require nearly $5 billion in cuts to public education if voters reject Brown's plan to raise taxes in the fall.(AP Photo/Rich Pedroncelli)

The Los Angeles Times' Anthony York reports on a...disagreement between the Legislative Analyst's Office and California Gov. Jerry Brown. Brown's budget plan, released prematurely last week, calls for tax increases that would generate almost $7 billion in additional revenue each year, bringing the state deficit down to zero in five years — the time frame for the tax hikes.

Not so fast, says the LAO: it will only be $4.8 billion in 2012-13, then $5.5 billion thereafter.

Here's York:

The wide discrepancy is the latest split over numbers between the administration and the Legislative Analyst's Office. Last November, the Legislative Analyst's Office released a revised estimate for the state’s current budget picture. Less than a month later, Brown’s department of finance came back with estimates that were $1.5 billion higher than the Legislative Analyst's Office numbers.

In its analysis Monday, the Legislative Analyst's Office said that predicting just how much Brown’s tax measure would bring in is difficult because it is dependent on income taxes from upper earners. That money varies wildly from year to year.

Actually, Brown's budget plan admits as much. And this points to an alarming problem with the state's finances: the wealthiest taxpayers now account for 22 percent of all income, up from 10.5 percent in 1980.

So we rely on the rich for nearly a quarter of all taxed income. No wonder it's become so difficult to get a good sense of what future tax revenues will be. Mind you, it's not that the rich are doing badly — booming and busting, rapidly cycling from caviar to hot dogs.

But they make the bulk of their money from capital gains, money earned by investing...money. Or by collecting rents on assets. This means that they're disproportionately exposed to market volatility. And the markets have been plenty volatile over the past couple of years.

The rich in California have come far enough that they don't have to live on what they earn anymore. But for those people who do live on what they earn, and are more exposed to the state's financial woes, that isn't really a good thing.

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