California’s most recent handout doesn’t address inflation and is little more than an election-year handout.
California residents will be receiving $1,050 back from the state government starting this week in a move that Governor Gavin Newsom says is designed to “help address rising costs.”
As I wrote back in June when this program was announced, it does not address inflation and is little more than an election-year handout. It’s probably not a coincidence that the checks are being issued in October, right before the midterm elections.
California has a massive budget surplus. Instead of providing residents with longer-term tax relief through tax reforms, the Democrats who run the state have decided to write big checks to voters in an election year and claim it will help fight inflation.
If California had more sensible tax policy, all this money would not have been taken from residents in the first place. California has the highest sales-tax rate, the highest gasoline-tax rate, the fourth-highest income-tax collections per capita, and the fifth-highest overall state-and-local tax burden of any state. For once, residents are getting some of that money back, which is certainly nice for them, but the state plans to continue to tax them at high rates next year and every year after that.
States can’t solve inflation by sending people money. While the scale of California’s tax rebate is much larger than any other state, Newsom is far from the only governor who has dressed up these gimmicks as addressing inflation, and some Republicans have fallen into this trap as well. States are in a great financial position right now, and they should be using the budgetary breathing room to enact long-term reform. Instead, many seem content to blow their surpluses on one-time gimmicks that will further goose spending in an already high-inflation economy.
Inflation is ultimately a question about the money supply, and that’s something for the Federal Reserve to address through monetary policy. State governors don’t play any role in that process. To the extent that they continue to spend recklessly, they are behaving similarly to Congress and the president, who are working against monetary policy by flooding the economy with more spending.
Californians would be better served if Sacramento pursued supply-side reforms to reduce the regulatory and tax burdens that make goods more expensive there than in other states. Throwing more money at the problems will not solve them, and continuing to ignore the causes of California’s high prices will only make them worse.