Coronavirus Outbreak: California's Fiscal & Policy Challenges - Essay Sample

Introduction

Following the outbreak of Coronavirus 2019 in China and the consequent spread of the virus to various parts across the globe, including in the USA, it is evident that there are several fiscal and policy challenges that every state needs to implement. Market research and critical analysis by the department of finance in the state of California show that the Coronavirus has significantly affected the financial health of the country and is likely to disrupt its financial stability. The facts presented by the finance department through its director has made it apparent that there is a need for the state government to quickly implement highly efficient strategies that would enable it to sufficiently handle the challenges arising as a result of the pandemic.

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The key findings by the finance department include:

• The state's share of sales taxes is estimated to reduce by 3 billion dollars this year.
• There is expected to be a delayed personal income tax receipts, which would result in delayed payments of up to 20 billion dollars.
• The tax receipts from banks and corporations are estimated to reduce by 6 billion dollars in the current year.
• The finance department estimates that the state would experience a 4.7 billion dollars increment in its expenditure this year.
• There is also expected to be a 10 billion dollar new expenditure for counties to provide direct hygiene services to the homeless, should legislation by the speaker of the assembly, and the president pro tempore of the state senate pass.
• The state government of California only has 19 billion dollars in its reserve, which is not sufficient to handle the above challenges.

As such, it has become increasingly crucial for a critical analysis of the challenges at hand, to provide recommendations that would help the state to run its operations smoothly.

State's Share of Sales Taxes

The state's share of sales taxes is estimated to reduce by 3 billion dollars this year, mainly because the number of sales of goods and services made by retailers is likely to decrease during the period of the Corona Virus pandemic. Because states such as California have ordered their citizens to stay indoors to avoid the rates of virus transmission, most citizens are likely to buy their goods remotely through the internet instead of purchasing the products through the traditional retailing process. However, unlike the conventional retailers who are compelled to collect sales taxes and pass them to the state government, the state government is often unable to collect and use sales taxes from remote retailers (Agrawal & Fox, 2017). In the wake of the Coronavirus, state governments are likely to lose a lot more sales taxes on the undefined remote sales and thus, devising a mechanism on how the sales tax from remote purchases would be collected would significantly help to increase the sales taxes and lower the 3 billion dollars projection in loss of the sales taxes this year.

Some of the recommendations to help handle the sales taxes challenge are:

Strengthening the courts ruling on mandating companies that engage in remote sales to collect sales tax and pass it on to the state government. While the California courts passed the law mandating companies to remit sales taxes collected on remote sales in 2019, the law has not been effective as it should be. Incorporating technology and tech companies in the collection of the remote taxes will significantly help to implement the court ruling effectively.

Demanding that sales taxes are collected on all sales made remotely and not just sales that reach a particular threshold.

Treating all goods bought remotely and services similarly acquired through the internet as goods and services purchased from physical shops. Often, state tax codes differ for similar products obtained remotely, and those bought the traditional way. Equalizing the tax codes for all sales, whether remotely or through conventional retailers, would considerably help to increase the sales tax, especially during the pandemic.

Tax Receipts

There is expected to be a delay in personal income tax receipts due to illnesses associated with the virus on both the staff members and the customers. The delay is estimated to result in up to 20 billion dollars on delayed payments. The Coronavirus has drastically affected the financial stability of businesses, making businesses unprofitable and consequently forcing the firms to cut down costs, including the costs of paying their employees (Hafiz et al., 2020). Thus, companies primarily in the leisure, hospitality, and transportation businesses have laid out their employees, rendering most individuals jobless while other companies close. In addition to the delayed tax receipts in personal income taxes, banks and other corporations are making lower profits than expected, which is expected to lower the tax receipts by 6 billion dollars this year. some of the recommendations to help in managing the tax delay challenge include;

Extending the personal income tax filing deadline for several months or weeks would enable businesses and workers in general to have adequate time to prepare and pay their taxes.

Waiving the penalties and lateness fees associated with late payment of taxes for both individuals, businesses, and corporations would help to ease the excess burden of financial difficulties.

Ensuring that the provision of the refundable tax credits are timely and reimbursed as soon as possible as a means of enhancing financial stability for workers and firms. During this period of the Coronavirus outbreak, a lot of workers are taking paid sick and family leaves, which is straining the firms financially-as such, ensuring that the refundable tax credits which cover for such leaves are reimbursed in time and as soon as possible would provide crucial economic support to firms.

Strengthening the unemployment insurance for the workers in the state would help cushion them in hard economic times. The delay in personal income tax receipts is, to an extent, associated with the hard economic times that individuals are facing, and thus, implementing a policy that offers direct cash payments to both under-employed and unemployed workers would in the short term help to manage the challenge.

New Expenditures

As a result of the Coronavirus, the state government is expected to incur new expenditures in a bid to help its citizens cope with the adverse effects of the virus. Medical and temporary assistance for needy families (TANF) is some of the areas that the government is expected to spend a lot more than usual. Additionally, the government is expected to incur new costs in funding a hygienic environment for the homeless since the homeless are at a high risk of contracting the virus and can easily transmit it to other individuals. Here are some of the recommendations that the state government can use to cover the new expenditures of approximately 4.7 billion dollars on medical and TANF, and 10 billion dollars on hygiene services for the homeless as projected by the finance department.

The state government can use a certain percentage of its 19 billion dollars reserve to cater for some of the new expenditures.

Temporarily reversing the 2017 tax cuts would significantly help to increase the state governments' revenues during this period, which would then be used to cater for the new expenditures. A permanent reversal of the 2017 tax cuts could also be implemented to help the state to increase its reserve as a way of preparing for future pandemics and catastrophes.

By restructuring the state's policies and amending some of the laws, the state government will be able to manage the Corona Virus and its associated impacts effectively. I will be glad to discuss the recommendations in detail during our next meeting.

Works Cited

Agrawal, D. R., & Fox, W. F. (2017). Taxes in an e-commerce generation. International Tax and Public Finance, 24(5), 903-926. https://link.springer.com/article/10.1007/s10797-016-9422-3

Hafiz, H., Oei, S. Y., Ring, D. M., & Shnitser, N. (2020). Regulating in Pandemic: Evaluating Economic and Financial Policy Responses to the Coronavirus Crisis. Boston College Law School Legal Studies Research Paper, (527). https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3555980