Observations on the Great Hunkering (5)

There are a handful of states, especially Illinois and Connecticut, whose fiscal woes have never really recovered fully from the financial crisis and recession of 2008-2009. Illinois wants to raise its personal income tax—again—through a ballot initiative this fall, but of course only on “the rich.” The money will supposedly got to schools, but everyone understands that most of it will go to backfilling the unfunded public employee pensions.

Then there’s California, which has been sitting on a nice budget surplus the last few years, but whose relative fiscal health (California’s public employee pensions are probably around $800 billion underfunded) is largely dependent on one-off windfalls from Silicon Valley IPOs and capital gains taxes, as well as income taxes from very high income individuals. It has been true since the 1990s that when the stock market crashes, California’s fiscal health crashes with it. (Related: The stock market crash has reduced CA’s pension fund assets by $69 billion. Great.)

The State Legislative Analyst has done a first cut at the likely effect of the economic moratorium we’re all going through, and while it is way too soon for a concrete estimate, the general conclusion is simple: It is going to be bad. Even through the report is written in typically bland bureaucratic language, it is clear enough where things are headed:

Taxes on capital gains are a significant source of state revenue. Even in “normal” times, capital gains income is difficult to forecast because it correlates with stock market performance. The Governor’s budget projected tax revenues from capital gains income of about $30 billion across 2019‑20 and 2020‑21. This estimate assumed that the average price level for the S&P 500 stock index would remain relatively flat from late 2019 through the first half of 2020, with gradual price appreciation thereafter. Similar to our November Fiscal Outlook, the Governor’s budget acknowledged that a market correction represented a significant downside risk to the forecast. . .

A preliminary analysis conducted by our office indicates a very high likelihood that tax revenues from capital gains income will be several billion dollars lower than what the Governor’s budget assumed. . . Regardless of the ultimate revenue estimates, the Legislature almost certainly will have to reassess its policy priorities for the upcoming year.

I think “several billion dollars lower” is likely an underestimate. The IPO scene was already contracting last year with the failure of the WeWorks launch, and several other IPOs were looking less attractive to the markets. High incomes in CA are likely to contract over the coming months.

One big question going forward is whether the bailout packages currently being assembled in Washington will extend to bailing out state and local governments. That raises a whole new can of worms.

Well, on the brighter side, California isn’t doing everything wrong:

California, you can now get cocktails delivered to your home during shelter in place

Drive-through beer pick-ups? Craft cocktails delivered to your door?

The state’s Department of Alcoholic Beverage Control (ABC) is temporarily relaxing several regulations in order to provide some relief for restaurants, bars and liquor stores that have been hard hit by shelter-in-place orders that have either severely restricted their businesses or forced them to close. The new rules make it easier for businesses to sell alcohol to customers while the orders are in effect.

• One live question at the moment is how severely the shelter-in-place regime is going to be enforced. Even here in Crazifornia most officials encourage people to get outside for some fresh air and exercise, and just keep “social distance” of at least six feet (which sure ain’t happening at grocery stores). I joke about living under “martial law,” but is it really a complete joke?

The public health department in Madison, Wisconsin, has an online page to “Report a Mass Gathering.”

This form may only be used to report mass gatherings that are being held in Dane County. For mass gatherings outside of Dane County, please contact your local law enforcement or health department.

So, rat out your neighbors, eh? “Contact local law enforcement”? Before this is over, expect some jaunty libertarians to test this regime and post some videos to YouTube with the classic question: “Am I being detained?”

Maybe the worst thing about living under martial law is no sports. British sports broadcaster Nick Heath isn’t standing idle though, and offers us some alternative play-by-play:

A few interrogatories and suggestions:

—Isn’t calling it the “coronavirus” bigotry against beer drinkers?

—I think one of the emergency measures to get the economy restarted after the quarantine is over is extending Girl Scout cookie season. #ThinMintsForever!

—With gyms closed and everyone staying indoors, this is a perfect time to work on perfecting your dad bod.

—Harvey Weinstein May not catch COVID 19, but he’s vulnerable to catching Epstein-Behind-Barr(s) virus.

So Trump is “mean” to the Chinese. I suppose liberals would prefer that Trump emulate FDR’s treatment of Asians instead?

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