September revenue comes up flat
(Calif.) Just when it seemed that tax collections in California began to make sense, September closed with a surprisingly flat line with respect to personal income taxes.
For almost a year, budget analysts have been predicting a spike in income tax collections driven by the still rolling stock market. But the state’s first quarter ended with a mere $9 million collected above the forecast of $7.6 billion.
That put the year-to-date figure for income taxes just slightly ahead of the $17.4 billion expected by now and the $17.5 billion actually paid.
Of the state’s three major sources of revenue, income taxes is the most important typically generating about half of what’s needed by the general fund.
Capital gains, like those paid on stock market profits, have become an increasingly important part of the personal income tax pool, and one that can be volatile and hard to forecast.
Indeed, for more than a year, some analysts have expected a big surge in revenues to the state as a result of capital gains investors would need to pay in the wake of Wall Street’s record pace.
Since legislative leaders and Gov. Jerry Brown negotiated the 2016-17 budget act, the Standard & Poor’s 500 stock index stood close to 2,170. After setting records practically every day through the spring and summer, the S&P today is close to 2,550.
While the focus will remain on personal income taxes, other sources did better than expected last month, the governor’s Department of Finance reported.
Sales taxes came in $5 million above the September forecast and now stands $247 million ahead for the year-to-date.
Meanwhile, corporate taxes jumped $125 million above estimates and brought the year-to-date figure also $214 million above expectations.
Combined, the state has collected $666 million more than anticipated at this point in time.
At some point, observers say, the big market investors are going to take more of their profits off the table and trigger significant capital gains taxes. There were many who believed a lot of taxes would have been paid in the 2016-17 fiscal year and indeed, the forecast for revenues last year fell about $2.7 billion short.
The assumption has been that those tax dollars didn’t show up because big investors are holding off on profit taking in hopes that the Republican Congress and President Donald Trump would negotiate an agreement on tax reform—something that the administration and leadership continue to work on.