California’s Income and Corporate Tax Revenues Are Beating Forecasts

The Golden Gate Bridge in San Francisco. Trevor Piper/The Epoch Times

California’s monthly tax collections are exceeding expectations, according to an Oct. 22 report from the state’s Department of Finance that shows receipts being $4.1 billion higher for the current fiscal year since April than was anticipated in the budget.

The newly released report shows an excess of $7.3 billion, with $3.2 billion of the cash attributed to the prior fiscal year that ended in June.

About $2.4 billion of the overage was received in September. That included $1.8 billion in personal income taxes and nearly $557 million in corporate taxes.

A spokesperson for the department said the timing of payments and other issues can significantly affect monthly figures and cautioned against using the calculations to predict the state of the economy.

“We always advise folks that one month’s totals shouldn’t be interpreted to indicate a long-term revenue trajectory,” H.D. Palmer, deputy director of external affairs for the finance department and principal fiscal spokesperson for California Gov. Gavin Newsom, told The Epoch Times. “There are a number of factors that can affect a month’s totals that don’t reflect any underlying strength or weakness.”

Personal income taxes beat estimates by more than 20 percent for the month and by 6.6 percent since April.

Higher wages, salaries, and property income are driving the increase, with growth of 6.5 percent in the second quarter after jumping by 15.2 percent in the first quarter, according to the report.

Corporate taxes came in 22 percent higher than expected in September and 12.7 percent stronger since April. Analysts cautioned that corporate overages could be an effect of new tax regulations, including net operating loss suspensions that limit the amount of operating loss credits corporations can claim.

“Therefore, this overage may not be fully indicative of overall corporation tax strength,” the finance department report states.

Sales and use tax receipts failed to meet the monthly forecast by 2.2 percent (about $60 million), but collections have topped forecasts by 0.4 percent (about $73 million) since April, according to the report.

It’s unclear how the surplus of funds will affect the state’s future budget—after lawmakers navigated a $73 billion budget deficit this year—with deficits expected to persist into the coming fiscal years, according to the nonpartisan Legislative Analyst’s Office.

Newsom’s budget for the current fiscal year estimated deficits of $37 billion in the next fiscal year, $30 billion in 2026–2027, and about $28 billion in 2027–2028, analysts highlighted in a September budget analysis.

Actions passed in the current budget also include reductions, deferrals, and delays for the next fiscal year to help mitigate the gap between revenue and spending.

The coming election also creates uncertainty. Voters will decide whether to approve of three multibillion-dollar bond proposals that could increase costs in the coming years when the bonds are repaid. The $30 billion borrowed could require about $50 billion to repay because of financing costs, according to analysts.

If voters reject Proposition 35—which would make permanent a tax on health care plans and reduce the amount of tax revenue the state can use to pay existing Medi-Cal costs—revenues could be reduced in coming years.

One analyst said the extra money is not yet substantial enough to overcome the ongoing budget dilemma facing the state, especially considering the variables that exist.

“Voter decisions on some ballot measures may affect the state’s budget position,” Jason Sisney, budget director for Assembly Speaker Robert Rivas, said in an Oct. 22 Substack post. “Accordingly, little of the revenue gains identified so far are likely to boost the state budget bottom line.”

California’s gross domestic product (GDP) rose by 2.8 percent in the second quarter of 2024 after spiking by 6.3 percent in the first quarter, according to the report.

Nationally, real GDP grew 3 percent in the second quarter after increasing by 1.6 percent in the first three months of the year, the report states.

Inflation nationwide dropped slightly in September to 2.4 percent—the lowest level recorded since February 2021, according to the finance department.

Core inflation—excluding energy and food costs—increased in September to 3.3 percent annually.

California’s unemployment rate hovered at 5.3 percent, and 14,700 jobs were added statewide during the month. Health services and private education industries saw the largest growth with 9,600 new positions, followed by an increase of 3,800 government jobs, among others.

The leisure and hospitality sector lost 4,400 jobs, information and technology companies shrank by 2,400 positions statewide, and other industries, including services, mining, and logging, also saw reductions.

Nationwide, unemployment fell to 4.1 percent in September with the addition of approximately 254,000 nonfarm jobs.

Housing permits remained relatively flat at 104,000 units permitted for the year through August, representing a decline of 6.8 percent compared with the same time last year.

The median price of homes sold statewide dropped by 2.3 percent during the month to about $868,000. Prices are about 2.9 percent higher than in September 2023.

Existing single-family home sales dropped by 3.4 percent from August to about 253,000—a 5.1 percent spike from September 2023.