Why does California have such a large deficit, despite having high state income and sales tax?
California state tax revenue is highly progressive and comes mostly from the very rich through income and capital gains tax. This means in good years, the state has plenty of money, but in down years when most rich people report major losses, the money goes away. Now, if you take the money from the good years and put it away for a rainy day, you can get through the tough years. This is what any responsible person does with their money. Unfortunately, in good years the state budget balloons and there is no safety net. Wikipedia has a lot more detail on this with references you can look at for more information: For example, it is estimated that in 2004 the richest 3% of state taxpayers (those with tax returns showing over 200K USD yearly income) paid approximately 60% of state income taxes[64]. The taxable income of this population is highly dependent upon capital gains, which has been severely impacted by the stock market declines of this period. The governor has proposed a combination
