California canceled $200 million in Middle Class Tax Refunds to balance budget — who missed out?
It was one of the more curious bullet points in Gov. Gavin Newsom’s presentation last week on how his administration will painlessly absorb, without slashing programs or hiking taxes, a deficit that has swelled to $31.5 billion: The state will hang on to $200 million it had promised last year for “Middle Class Tax Refunds.”
So did Newsom pull a Lucy and snatch away the football from poor Charlie Brown taxpayers? Not quite. The unspent refund money stemmed from an overestimate of qualifying taxpayers who couldn’t claim the refund — dead people and splitters who departed California —
“The principal reason,” Department of Finance spokesman H.D. Palmer said, “is that our estimate didn’t account for turnover due to migration and deaths.”
California was in a very different budget place a year ago, boasting an unprecedented $97.5 billion budget surplus thanks to economic gains enjoyed by the state’s wealthiest residents, whose personal income taxes are a key source of state revenue.
With inflation soaring and gas prices spiking, Newsom offered to return $9.5 billion of that surplus bounty to individual taxpayers who earned no more than $250,000 or joint filers up to $500,000, as relief from record inflation and gas prices. Payments ranged from $200 to $1,050 for 23 million qualifying taxpayers.
With California now facing a deficit as the investment earnings of rich Californians have fallen, Newsom said part of this year’s deficit can be covered by penciling out some $6.7 billion in budgeted but unspent money. The downsized Middle Class Tax Refunds are part of that.
Palmer said those eligible for the refunds had to be a California resident for at least six months of 2020, file a 2020 tax return that met the income thresholds by Oct. 15, 2021, and not be claimed as a dependent on another return. They also had to be a California resident on the date the payment was processed, and could not be deceased or incarcerated at the time.