But California has a $38 billion reserve, believed to be the largest of any state in U.S. history,
By Amanda Albright and Eliyahu Kamisherfor years had an enviable problem. His state was awash in cash.
The differing fortunes are highlighting the growing divisions between the largest Democrat and Republican-led states at a time when they’re competing for businesses and people to relocate, and their leaders are often sniping at each other over policies from immigration to taxation.
California’s personal income tax collections are its largest revenue source and about half comes from the top 1% of earners. That leaves the budget especially susceptible to financial shocks impacting this small subset of taxpayers. Meanwhile, Florida and Texas rely on taxes on sales, which have held up well as Americans keep spending, to the surprise of economists. Those levies have also been bolstered by inflation.
Some of the revenue declines aren’t a surprise because lawmakers have been on a tax-cutting spree. Half of US states cut personal or corporate income tax rates, and in many cases both, over the course of 2021 through 2023, according to the Center on Budget and Policy Priorities.
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