California's bustling state legislators have been bold. Progressing with plans for reparations, they navigate the contentious crossroads of social justice and fiscal discipline. It's a noteworthy gesture in understanding historical misdeeds, yet one that may come with a steep price tag in light of the state's pressing $68 billion deficit. State Senator Steven Bradford, the frontman for reparations legislation, refutes cost complaints and suggests the reparations may take forms other than direct payments.
Recently submitted proposals expose the preliminary steps towards incorporating the recommendations of the State Reparations Commission into law. An intriguing offering from Senator Bradford calls for an allocation of $1.5 billion for reparations this year. A noteworthy fact is that this "down payment" excludes further annual transfers of 0.5% from the state's General Fund.
Down Payment or High Stakes Bet?
The concept of a "down payment" leaves one wanting further details. The Pacific Research Institute's analysis offers some insight into possible costs, tackling the question on taxpayers' minds - what might these reparations set us back? It provides an unequivocal answer: 'a considerable sum.'
An impartial review conducted by CalMatters of the California Reparations Commission's comprehensive report estimates each eligible resident's reparations to be $1,381,198.
With the expectation that nearly 80% of the state's Black residents, or close to 2 million individuals, qualify, we're presented with a $2.8 trillion total. To place this in context, it equals an overwhelming 75% of the state's overall economy.
Rubbing Billion against Trillion
Setting up this immense sum within a year isn't feasible. Over 30 years, the annual state burden fluctuates between $93.3 billion and $182.0 billion. This hinges on whether factors like inflation and the time value of money are considered.
This introduces a problem. Califonia Governor Gavin Newsom's total suggested state spending for the 2024-25 budget totals $291.5 billion. Balancing the books thereafter would demand a substantial tax hike or a radical cut in another expenditure.
Tax Strains or Spending Pains?
Realistically, it's unlikely that drastic reductions in spending will cover the reparations' cost. Instead, legislation may lead to a tax increase unseen in the state's history. To fund even the lower estimate of $93.3 billion, California's income, sales, and corporate income tax rates would need to be upped by 3.25 percentage points, per the Pacific Research Institute's analysis.
The increase would devastate household incomes, employment, and migration trends out of California. Californians already grappling with their budgets would see their income growth drop by 5.69% over five years. The state's economy, teetering on recession, would shrink by 11% in five years, equating to a 4.9% drop in jobs.
The exodus of people, jobs, creative talent, and tax revenue from the state would be expedited. The enactment of reparations could instigate the departure of an estimated 1.84 million residents from California within five years.
Trade-offs and Alternatives
Are Californians in a position to bear significantly more tax? Is it justifiable to request a tax burden increase of over 50% from industrious immigrants, among others?
These questions suggest a more equitable and prosperous solution. There lies the potential to ameliorate the condition of Black families and any struggling California households. Key actions encompass repealing AB 5, promoting school choice, and revising the California Environmental Quality Act and local zoning regulations.
These measures aim to multiply opportunities and incomes, especially for lower-income households. Encouraging prosperity across the board appears to be the best approach for assisting Black Californians and all state residents to achieve the American Dream.
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