Capital gains, state budgets, and the insanity of depending on the asset economy
by David Atkins
This is what happens when you leave your economy to the whims of the market and the asset classes, courtesy Jon Healey at the L.A. Times:
Hey Wall Street, California owes you one.
The prolonged bull market has produced two banner years for capital gains in the state, with an even better year expected in 2014. The result has been surging capital gains tax revenues, which account for all of the surplus projected by Gov. Jerry Brown for the coming year.
Those revenues averaged a little less than $4 billion a year from 2008 to 2011, accounting for about 4.5% of the state's general fund. From 2012 through 2014, the average is expected to be $10.2 billion, or roughly 10% of the general fund.
But as Brown points out in the above picture, capital gains follow a roller-coaster trajectory. They shot up during the dot-com boom, then crashed in the aftermath. They rebounded during the housing bubble, only to collapse again when it burst.
Here's the pic:
Jon Healey's conservative views aside, the answer isn't to leave capital gains untaxed in an era of record inequality. The answer is to broaden and strengthen the middle class so that there is a more prosperous and more stable tax base. It's not just that millions of people suffer in a financialized economy divided between the very rich and the impoverished multitudes. It's also dramatically destabilizing for governments that become increasingly dependent on asset-based revenues, and whose budget rise and fall dramatically with the markets. Allowing the economy to become even more financialized and unequal isn't just morally wrong. It's also incompetent and guaranteed to crash the government far faster than deficit spending ever could.
But maybe that's the point?
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