December revenue surged $4 billion above estimates

December revenue surged $4 billion above estimates

(Calif.) After more than a year of waiting, the Trump bump may finally be reaching the coffers of state government as December receipts of both personal income taxes and those paid by corporations came in nearly $4 billion above expectations, according to preliminary review from the nonpartisan Legislative Analyst.

Although the numbers are surprisingly strong, making sense of them remains clouded in speculation on whether the new money is the result of the long-awaited profit taking, or some nuance in tax avoidance tied to the restructuring bill passed by Congress just before Christmas.

“Tax payers had incentive to accelerate some of their tax payments to December, which could be a big part of this surge,” said Ryan Miller, the LAO’s principal fiscal and policy analyst. “If that’s the case, it comes at the expense of payments we would have otherwise expected in January and April.

“On net, our initial sense is that this is positive news, but we are going to have to follow this over the next several months to have a sense of how much of this is new revenue that is the result of the stock market and the economy or payments that have been just moved forward,” he explained.

It would seem that both scenarios are good news for the state, and especially for schools. Regardless of how sophisticated investors have decided to plan their profit taking, the Standard and Poor’s 500 Index rose more than 500 points in the past year and because taxes on capital gains have not kept pace–eventually those bills will come due.

The LAO’s analysis showed that a total of $13.8 billion in personal income taxes was paid in December, which was well above the $10.6 billion estimate made as part of the budget process last June.

Meanwhile, corporate taxes accounted for another $2.4 billion, which also beat the projections of $1.7 billion for the month.

The combined difference was slightly more than $3.9 billion.

With Gov. Jerry Brown set to unveil his 2018-19 spending plan next week, the timing could not be better—although the famously tight-fisted governor will no doubt warn against taking on much new spending.

Still, according to the LAO, the collections for income and corporates taxes to date reach close to $46 billion, well ahead of the $41.4 expected by this time.

Since the election of Donald Trump as president, the stock market has surged to record levels. In the past, the bull market would have resulted in a big upswing in capital gains, but 2017 proved almost impossible for analysts to predict because of anticipation that Congress and Trump would come to an agreement on tax reform.

That didn’t happen until the very end of December, and thus, it is unclear exactly what is motivating investors.

Miller said January and April will be important months to watch, but already, the first few days of January are interesting because tax income continues to surge. That said, there is still too much not known to draw many conclusions.

“We would probably caution in making too much of it until we have a few more months of experience and have a better sense if this is revenue we would have gotten anyway,” Miller said.

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