California Tax Revenues Soar Ahead of Projections as Economy Booms
Thanks to a booming economy and soaring stock market, California’s income tax revenue has continued to far exceed both projections and last year’s totals.
For the crucial month of April through Monday, personal and corporate income tax revenues have come in about $700 million above projections and nearly $1 billion more than last year, according to Justin Garosi, an economist with the Legislative Analyst’s Office.
For the fiscal year as a whole, those income taxes have totaled over $82 billion, nearly $4 billion ahead of projections and over $9 billion ahead of this point last year.
The state still expects to rake in an additional $2 billion or so by the end of the month.
State budget experts are still trying to sort out how the federal tax law passed in December will impact state tax revenues. Starting this year, taxpayers who itemize can deduct a total of $10,000 in all state and local taxes combined on their federal return. Before this year, there was no limit on this deduction.
As a result, some Californians likely raced to make their remaining 2017 state income tax payments in December, rather than waiting until January, when estimated tax payments are due, or when they filed their 2017 tax return. Indeed, state income tax revenues in December came in a whopping $4 billion, or 32 percent, above forecast.
In January, the analyst’s office said, “The positive December personal income tax results could be partially offset by softer January and April collections.”
On the other hand, most Americans will be in a lower federal tax bracket in 2018 than they were in 2017. People who have some control over their earnings may have postponed some of their income from 2017 into 2018.
Garosi said his office won’t know until final April payments are in what impact those changes had and will have on state revenues.
But there’s no question that the state is benefiting from a booming economy and capital gains resulting from last year’s strong stock market performance, Garosi said.
A spokesman for the California Department of Finance will not update its forecast with the latest numbers until Gov. Brown releases his revised budget in June.
“There is still a lot of room for us to pick up a lot more than we expected, or to pick up a lot less than we expected,” said Jay Chamberlain, the department’s financial research unit chief.
The April tax haul “is a sign the economy is thriving,” said Chris Hoene, executive director of the independent California Budget & Policy Center. “It’s not like they raised (tax) rates this year to get the revenues.”
Assuming the windfall holds up, the big question will be what to do with it.
“The governor has been an ardent proponent of putting as much as possible in the rainy day fund. I expect he will continue to make that case,” Hoene said. But he thinks “there could be a better balance struck between rebuilding some services that are lower than they were prior to the recession,” such as child care and assistance to low-income seniors and people with disabilities.
There will also be calls to return some of the surplus to taxpayers, especially now that state and local taxes are no longer deductible.