April tax collections off to a fast start
(Calif.) The first week of the critical tax collection month of April ended with just over $1.1 billion in personal income taxes paid into state coffers.
Generally, April is the state’s most important month for personal income taxes, which are the state’s most important source of revenue. Last year, income taxes accounted for almost 68 percent of all state general fund money, and out of that 15.5, percent was paid in April.
Boosted by a soaring stock market, the state ended March with nearly $62 billion in general fund receipts for the 2017-18 fiscal year—which is 3.1 percent higher than estimates made just two months earlier by the governor’s Department of Finance.
The governor’s January budget anticipated that personal income taxes would generate $13.5 billion for the state in April.
The big question is whether April will perform as expected or swing decisively in one direction or another.
Forecasting state revenues had been over time a reasonably straightforward task—if the stock market was doing well, then California revenues would too.
But because of expectations that the Republican Congress and President Donald Trump would quickly negotiate a tax bill, investors were careful not to take profits too early.
When the president and Congressional leaders finally did approve a tax bill at the end of 2017, there was a surge taxes paid on capital gains. December revenue exceeded expectations by $4 billion and in January ran close to $2.7 billion above projections.
In February, personal income taxes were off by almost 14.5 percent, or $3 billion. The state controller’s office attributed some of the disappointing numbers to an unexpected spike in tax refunds that month.
The forecaster’s task has become even more complicated as a result of the sudden market correction stemming from the brewing trade war with China. Indeed, the Standard & Poor’s Index hit a high on January 26 of 2,872. The S&P closed Friday just above 2,600.
Justin Garosi, an economist with the non-partisan Legislative Analyst’s Office, said it is too early to predict how April revenues will sort out.
“The big April processing rush can go almost until the end of the month,” he said. “At that point you have a better chance of making some judgements about how much revenue we collected for the 2017 tax year.”
The LAO, which relies on different economic assumptions than the administration, estimated in November that income from the state’s four largest general fund sources would come in about $3.4 billion higher than those made by the governor’s Department of Finance in January.
Garosi noted that as part of that forecast, the LAO assumed that the average level of the S&P index for 2018 would be 2,342.