California Gov. Gavin Newsom is facing lower-than-expected tax revenues, thanks to unexpectedly low sales tax revenues from legal marijuana, and the first implementation of the new federal cap on state on local tax (SALT) deductions.
The San Jose Mercury-News reported earlier this week that California only collected $345 million, not the expected $1 billion, on legal marijuana sales in 2018, the first year that marijuana was legal for recreational use under Proposition 64 of 2016.
Some analysts believe the taxes on marijuana were too high, making black market marijuana more attractive. Newsom, who favored legalization, has vowed to crack down on illegal marijuana operations, pulling California National Guard troops away from assisting with border enforcement to do so.
In addition, the Los Angeles Times reported Wednesday: “State financial experts on Tuesday reported fiscal year-to-date revenues are more than $2.3 billion below the expectations set by Newsom’s first spending plan.” The reason, they believe, is that wealthy taxpayers delayed paying their taxes. Because they are no longer able to claim more than $10,000 under the SALT deduction, it made more financial sense for California’s rich to hold onto their money and earn interest until the April 15 filing deadline rather than paying the tax during 2018, as usual.
Newsome is also wrestling with President Donald Trump over funding for California’s high-speed rail project, which the governor canceled earlier this month. The Trump administration wrote to the state’s high-speed rail agency on Tuesday to notify it that nearly $1 billion in funding was being canceled.
California now wants to scale back their already failed “fast train” project by substantially shortening the distance so that it no longer goes from L.A. to San Francisco. A different deal and record cost overruns. Send the Federal Government back the Billions of Dollars WASTED!
— Donald J. Trump (@realDonaldTrump) February 20, 2019
The administration wants to recover the rest of the $3.5 billion granted to California by President Barack Obama’s administration for the project.
Joel B. Pollak is Senior Editor-at-Large at Breitbart News. He is a winner of the 2018 Robert Novak Journalism Alumni Fellowship. He is also the co-author of How Trump Won: The Inside Story of a Revolution, which is available from Regnery. Follow him on Twitter at @joelpollak.