A record $16 billion in income tax revenue will flow into state coffers during April, according to predictions in Gov. Jerry Brown’s January budget plan.
About $5 billion of that $16 billion comes from higher taxes approved by voters in November through Proposition 30 — $4.5 billion in taxes owed for 2012 and $500 million in estimated payments for what’s due next April.
Privately, the governor and Legislature believe it’s likely California will fall short of the $16 billion record. And, so far anyway, that’s no big deal.
The main reason the blood pressure of state budget writers isn’t spiking is that Brown’s Department of Finance reported April 12 that the state is running $5 billion above revenue estimates through March.
That “surplus” is largely due to January income tax collections, which totaled $12.7 billion, $5 billion more than the Brown administration expected.
In other words, the governor’s $138 billion spending plan will still be balanced even if April income tax collections come in as low as $11 billion.
The Brown administration and the Legislative Analyst’s Office still aren’t sure what caused the big pile of unexpected cash in January.
At the time, the Legislative Analyst said the surprise $5 billion could come in part from Californians cashing out capital gains in 2012 before higher federal tax rates kicked in this year.
They also said that some Californians — typically wealthy ones — who had to pay federal and state taxes by January 15, may have sent a larger check to the state to reduce whatever extra they might owe in April from Proposition 30’s higher rates.
Although approved in November, Proposition 30’s higher rates of up to 3 percent more for Californians earning $250,000 and above applied retroactively to the entire 2012 tax year. In part because of that retroactivity, there is no penalty in April for underpayment.
Under the Legislative Analyst’s theory, the higher volume of payments in January potentially means less taxes will be paid in April than predicted in the governor’s budget.
On the other hand, taxpayers cashing out capital gains in 2012 may not necessarily have paid their Proposition 30 obligations early — and vice versa — so the effect of January on April collections may not be as significant. Another possibility raised by the analyst is that January’s revenue spike could simply stem from an improved economy. Most likely all of the possibilities raised by the analyst contributed to the January windfall.
By the end of the month, the state will determine how accurate those theories are as the Franchise Tax Board begins counting the checks sent in beginning April 15. The Legislative Analyst keeps track of the day-to-day action on April tax returns here.
In following the numbers, the $16 billion is the amount of gross receipts. The net — $16 billion less requests for refunds – is the more important number. Brown’s budget experts bank on a net $13.3 billion.
Again, the extra $5 billion lying around the Capitol from January significantly blunts the fiscal impact of falling below even April’s net number. The analyst says that because of that extra $5 billion from January, April’s income tax net could be as low as $8.5 billion and the budget would remain balanced.
Human nature being what it is, there’s just over $1.4 billion in refund requests logged by the tax board through April 15 and just over $4.7 billion in withholding by employers and estimated payments by individuals.
Who wouldn’t submit a tax return earlier if it promised a check back from the government and delay as long as possible filing a return that required a check written to the government.
April is also supposed to yield a net of just under $1.5 billion in bank and corporation tax receipts. Receipts total $568 million through April 15 with $27 million in refund requests.
Business tax collections are running on target for the year. The Department of Finance’s March Bulletin shows receipts $92 million above the expected $2.2 billion.
California has never received $16 billion in April but it received over $15 billion in April 2008 and just under $15 billion in 2007.
To offer a bit of perspective, $16 billion is five times the total annual $3.2 billion state general fund spending in 1967 when Ronald Reagan became governor. Money went farther in 1967, though. Reagan’s nearly $1 billion tax increase that same year – still the biggest by a governor in U.S. history — would be the equivalent of $17 billion today. — Ed’s Note: Greg Lucas is the editor and publisher of California’s Capitol. This story appeared on his website, www.californiascapitol.com.