California tax collections may be $6.5 billion less than Governor Jerry Brown estimated in his spending plan for the current and following fiscal years -- even with the benefit of about $2 billion from a Facebook Inc. stock offering, the state’s budget analyst said.
California will probably collect about $177.5 billion in revenue through June 2013, instead of $184 billion Brown has estimated in his proposed budget that includes higher income and sales levies, the state’s Legislative Analyst’s Office said today. Brown and the analysts office differ on how much the state will receive from capital gains.
“We can identify no strong rationale for the administration’s assumption that capital gains will grow very rapidly in 2012 and later years,” the LAO said in its report today.
The largest U.S. state by population, and the most indebted, is confronting a $9.2 billion deficit. Brown, a 73-year-old Democrat, wants voters to boost sales and income taxes that would raise about $6.9 billion annually until they expire in four to five years. He built that amount into his spending plan and inserted a provision that automatically triggers $4.8 billion in cuts to schools if voters reject the higher levies.
The report “underscores the need for additional revenues, as the governor has proposed with his November ballot initiative,” Brown’s budget spokesman, H.D. Palmer, said in a statement. “It also highlights the fact that the pending IPO by Facebook, while potentially significant, can’t be expected to lessen the need to take tough steps now to balance the budget.”
Facebook, the world’s most popular social-networking site, filed for an initial share sale this month. The Menlo Park, California-based company has yet to set its price range for the initial offering.
Brown’s budget assumes California taxpayers will earn $96 billion in capital gains in 2012, more than three times as much as at the height of the recession in 2009. He also estimates that the state will take in $8.6 billion in taxes on those capital gains, about 9 percent of general-fund revenue.
The governor assumes that reductions in marginal tax rates permitted by President George W. Bush in 2001 and 2003 will be allowed to expire at the end of this year and that higher-income earners would accelerate their capital gains into this year to take advantage of the lower tax rate.
Brown also counts a portion of capital gains expected in 2013 this year instead, assuming that investors will try to shield income from higher Medicare taxes scheduled to take effect next year.