Here's what California's radical reparations plan will cost taxpayers

Much of the discussion surrounding the push for reparations in California, New York and cities like San Francisco center on the historical justifications for mass payouts. Yet, as the ancient Greek philosopher and mathematician Pythagoras said, "Numbers rule the universe."

Reparations proponents in California are quick to dismiss criticisms over cost. Reparations may not even come in the form of checks being mailed out, says state Sen. Steven Bradford, the leading legislative reparations proponent. The scope and eligibility, he argues, are yet to be determined.

California lawmakers are nonetheless moving forward. Recently, legislators introduced proposals that start implementing the recommendations of the State Reparations Commission. In one proposal, Bradford proposes that California spend $1.5 billion on reparations this year – at a time when the state is facing a $68 billion deficit – along with annual payments of 0.5% of the state General Fund, on what he calls a "down payment."

Los Angeles resident Walter Foster, 80, holds up a sign as the Reparations Task Force meets at the California Science Center in Los Angeles on Sept. 22, 2022.(Carolyn Cole/Los Angeles Times via Getty Images)

This, of course, begs the question – a down payment on what?

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A new Pacific Research Institute analysis fills in some of the blanks, asking the key question that millions of taxpayers have wondered – how much will reparations cost? The answer is a lot.

Based on a nonpartisan media analysis of the California Reparations Commission's 1,000-page report by CalMatters, the cost of the reparations per eligible Californian is $1,381,198. 

Nearly 80% of California's Black residents are estimated to be eligible, which comes to approximately 2 million who could qualify for payments. Paying 2 million people $1.4 million each creates a $2.8 trillion reparations bill. This would be nearly 75% of the state's entire economy. 

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The Legislature can't pay this sum in one year. Assuming reparations are paid over 30 years, the annual state cost would range between $93.3 billion and $182.0 billion, depending on whether you ignore inflation and the time value of money. 

Since Gov. Gavin Newsom's total recommended state expenditures for the 2024-25 budget is $291.5 billion, this would require a massive tax increase or a radical reduction in all other expenditures.

This image made from video shows California Gov. Gavin Newsom signing into law a bill that establishes a task force to come up with recommendations on how to give reparations to Black Americans on Sept. 30, 2020, in Sacramento. (Office of the Governor via AP)

As spending reductions are unlikely, the Legislature's more likely response would be to raise taxes to fund most of the reparations. However, the necessary tax hikes would need to be more extreme than any increase in state history.

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Raising enough money to fund the lower end estimate of $93.3 billion requires a 3.25 percentage point increase in California's income, sales and corporate income tax rates, based on the PRI analysis.

The impacts on household incomes, employment and the exodus of families away from California would be devastating. Average Californians already struggling to make ends meet would see growth in their household's income fall by 5.69% over five years.

The state's economy, which is on the verge of recession, would be 11% smaller in five years – resulting in 4.9% fewer jobs created over that period.

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Worse, it would accelerate the exodus of people, jobs, creativity and tax revenue leaving the state. If reparations are enacted, an estimated 1.84 million people will leave California over five years.

Can Californians really afford to pay significantly more in taxes? When debating questions of fairness, is it fair to ask hard-working immigrants and others struggling to make ends meet to pay a more than 50% higher tax burden?

If numbers rule the universe, the answer to both questions is no.

There is a better way that will create prosperity and improve affordability not just for Black families but for all California families struggling. These include repealing AB 5, which denies work opportunities in the gig economy, implementing school choice to improve education outcomes and break students out of failing public schools, and reforming the California Environmental Quality Act (CEQA) and local zoning regulations to lower the cost of housing.

These policies will expand opportunities and incomes, particularly for lower-income households. Incentivizing broad-based prosperity is the best way to help Black Californians – and all Californians – climb the economic ladder and obtain the American Dream.

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Dr. Wayne Winegarden is a senior fellow in business and economics at the Pacific Research Institute. Download the reparations brief at www.pacificresearch.org.