Facebook's IPO is expected to be one of the largest one-time wealth-creation events in history. All that new wealth is also expected to generate millions, if not billions, in tax revenues for California.
But can Facebook’s Wealth Effect rescue California from its latest budget crisis?
The obvious reason is that Facebook’s windfall is already baked into California’s budget. When Governor Brown announced Saturday that the state's budget deficit was suddenly $7 billion more than expected, he was already taking into account the $2 billion or so in tax revenue expected from all those newly minted Facebook millionaires and billionaires. (Zuckerberg’s federal and state tax bill alone could top $2 billion).
If for some reason the Facebook deal underperforms, or company executives hold on to their shares longer than expected, the $7 billion surprise could grow even larger.