Exposing the madness wehind current economic thought

Monday, August 6, 2012

California Bet 2% Of Its Budget On Facebook's Stock Price

California essentially bet 2% of its budget on Facebook's stock price remaining high.

Robert Wenzel on EPJ:

The state's projection for 2012 revenues is $91.3 billion, but that was made on the assumption that Facebook insider sales would bring in $1.9 billion in tax revenue. With the price of Facebook stock collapsing, tax revenues from Facebook stock sales are not going to come anywhere close to projections.

And as an editorial points, the problem will only get worse:

California has no one to blame but itself for falling short. The state is simply experiencing the extreme revenue volatility that comes naturally with its soak-the-rich tax laws.

Its top income-tax rate of 10.3% (for incomes over $1 million) puts it near the top of the scale in the U.S. It also taxes capital gains at the full income-tax rate.

Not seeming to notice that this roller-coaster revenue is a problem, Brown is pushing a November initiative that would raise the top rate to 13.3%, well above that of any other state.

The last thing California needs is more uncertainty. Brown's plan would make it even more of a slave to stock-market swings and frothy IPOs.