How can we cut our state's massive $68 billion budget deficit by almost half? Easy. With a pencil.

Just erase “68” and write “38”.

I'm only half joking.

Either way, budgeting in Sacramento is basically guesswork. At this stage, one number, one tax calculation, is basically as valid as any other number. There are five months left until the budget passes Congress.

Gov. Gavin Newsom on Wednesday opted to strike a relatively optimistic note about the economy in 2024 as he sends a roughly $292 billion spending plan to Congress for the next fiscal year, which begins July 1. did.

Still, Newsom's proposal is about $20 billion less than the current budget. He estimates that gap will essentially close after the governor and legislative leaders finish negotiating the final product. After all, the California State Capitol is controlled by liberal Democrats.

Mr. Newsom's upbeat economic outlook contrasts with what the nonpartisan Legislative Analysis Service said last month. Congress' own highly respected number cruncher, the Secretariat, has issued a far more pessimistic forecast. The government estimated the budget deficit at $68 billion, hinting at the risk of a recession.

“We're a little more optimistic,” the governor said when announcing his budget proposal to reporters. “An economic recession is unthinkable.”

As usual, Newsom displayed an incredible numerical memory, clearly reciting the data nonstop for nearly two hours.

California taxpayers and key users of state services will benefit from Mr. Newsom's confidence in the economic recovery, at least for now. In other words, there will be no full-scale tax increase. There will also be no major cuts in education or health care.

If Mr. Newsom's revenue forecasts come true, spending cuts could become even more severe in the future.

But few politicians want to raise taxes in an election year, and for governors who dream of one day sitting in the Oval Office and seem to be packing light for the 2028 presidential race, which one? Even in 2017, the government does not want to raise taxes.

The governor couldn't be more clear about the fact that he has no interest in widespread tax increases.

“Why on earth do you keep writing about it?” he asked reporters, referring to speculation about tax increases and specifically targeting the Wall Street Journal's op-ed page. “The nation is paying a price for misrepresentations and lies.”

Later, when asked by reporters whether he intended not to raise taxes on a large scale, the disgruntled governor replied: I say it every year. ”

So how does Newsom propose to balance the books?

First, the governor significantly exceeded the Legislative Analysis Service's deficit projection by $30 billion. He assumes the economy will generate $15 billion more in tax revenue than legislative analyst Gabriel Petek. And he calculates that the amount of state school aid needed is $10 billion less than officials have calculated.

Newsom will then tap into $13 billion in reserves.

He has made $8.5 billion in spending cuts, most notably climate change and housing programs.

Focused taxes are paid by managed care organizations that serve Medi-Cal beneficiaries. That would generate nearly $4 billion.

He wants to delay spending on $5 billion worth of items, including transit, intercity rail, provider rate increases for the developmentally disabled, preschool programs and investments in clean energy.

The $3.4 billion worth of general fund spending would be redirected to other important funds, such as the cap-and-trade program to pay for climate change programs.

There is also a $2 billion accounting mechanism. One example: pay a state employee her salary on June 30th rather than on July 1st so that the expenditure is counted in the next fiscal year.

How did a state that fell from a $100 billion budget surplus just 18 months ago find itself in this deficit hole?

One short-term reason is that the federal government last year extended the regular tax filing deadline from April to November to make life easier for Californians affected by record winter storms. . That means Newsom and his lawmakers didn't know how much tax revenue they would receive until they passed the current budget in June. So they took the easy way out and overestimated the amount of tax collected.

“We were blindfolded,” Newsom said. If they had been able to see clearly, he argued, spending would have been revised downwards.

perhaps. But their natural tendency was to spend more, not less.

The longer-term problem is that Sacramento continues to ride a roller coaster tax system that reacts erratically in both boom and bust. It's either boom or bust for the Treasury. But politicians don't have the will or courage to solve it.

The top 1% of earners pay nearly 50% of state income taxes and account for two-thirds of Sacramento's revenue. In a strong economy, capital gains fill your coffers, but when investment returns slump, they dwindle to a trickle.

A long-sought reform that has never gained traction is expanding the tax base. It would reduce California's income tax rate of 13.3%, the highest in the nation, and apply consumption tax to service industries such as law and accounting.

Asked about that Wednesday, Newsom said, “It's the art of the possible.” And reform seems politically impossible.

Regardless, Newsom said he prefers to maintain California's highly progressive income tax system and simply save more money in good times and spend it in bad times. He wants to adjust the law to allow for higher savings.

This is Newsom's opening salvo in budget negotiations with legislative leaders.

It is certain that even the governor's minimal cuts will be eased and spending will increase. The Liberal Democratic Party holds that position.