The state that wants to set aside tens of billions of dollars for slavery reparations can't get its default budget under control. The prospect of a budget shortfall in the Golden State is certainly nothing new. Despite levying some of the highest taxes in the nation and being home to some of the most productive, profit-generating companies in the world, the state legislature always seems to find creative new ways to burn through all of that cash. Only last month, Governor Gavin Newsom was warning residents that there could be a budget gap of as much as $38 billion. But when the final figures were released last week, the actual number was an eye-watering $73 billion. And that's without spending a penny on reparations. The Wall Street Journal openly mocked the economic mismanagement on display. (Subscription required)

The California Legislative Analyst’s Office (LAO) on Tuesday increased this year’s projected state budget shortfall to $73 billion—nearly twice as much as Gov. Gavin Newsom forecasted last month. Ouch. Mr. Newsom has ambitions to reside in Washington, D.C., and based on his deficits it looks like he’d fit right in.

Mr. Newsom projected a $38 billion budget gap last month—$20 billion less than the LAO did at the time. He’s counting on a surge in tax revenue from capital gains after the rise in stock prices in recent months.

Tech companies based in California have been among the biggest beneficiaries of the bull market. Artificial intelligence chip maker Nvidia’s stock price has increased by roughly 50% since November.

A budget deficit of $73 billion for a single state is simply insane. Yes, it's small potatoes compared to our national deficit, but that's nothing to be proud of either. The entire 2023 state budget for South Dakota, which is currently experiencing a population boom, was just $7.39 billion. Yes, they have a much smaller population, but that still means that California's shortfall is ten times the size of what some other states spend on everything combined.

As you can see, Newsom's brilliant plan to address this situation involves bringing in even more tax revenue from Silicon Valley and wealthy investors. The stock market has been making something of a comeback in recent months and that is usually reflected in the earnings reports of Big Tech companies. Some of them, such as Nvidia, have seen recent surges in their stock value, but that's not being reflected in the amount of tax revenue the state is taking in.

There are several possible explanations for this and the WSJ lists a few of them. For one thing, while the amount of money being withheld has no doubt increased, it's being offset by other factors. People in the top ten percent may be kicking in more, but the lower and middle classes are contributing less. Why? Because California's unemployment rate ticked back up to more than five percent in December. Compare that to the current national average of 3.7% and Florida's rate of 3%. 

Another factor is probably the fact that there aren't as many wealthy people and big, booming companies left to fleece these days. More than a million people have moved out of California since 2021. That includes many of the wealthiest, and some of them took their companies and all of the jobs they created with them. Middle-class workers have also been fleeing, seeking better opportunities and lower costs of living in more friendly states. California's overall population hasn't decreased by quite that much, but that's because a lot of those people are being replaced by the invasion of illegal migrants. But the migrants don't pay taxes. In fact, they siphon even more money out of the system and those funds are not being made up for elsewhere.

California's financial situation is a mess, but it's not because of any sort of natural disaster or unavoidable external pressure. This was a man-made disaster brought about by the destructive policies of the state's elected leaders. And they are showing no indication that they've learned any lessons from all of this or plan to amend their ways.