California is on track to collect $5 billion more in tax revenue this month than estimated in Governor Jerry Brown’s budget, and the state’s fiscal analyst’s office said it can’t say why, yet.
High-income earners may have cashed out investments early in anticipation that federal income taxes would rise as part of a congressional deal over avoiding automatic tax increases, the state’s nonpartisan Legislative Analyst’s Office said yesterday in a report. U.S. levies on capital gains rose to 20 percent from 15 percent under this month’s agreement in Washington.
“January is also the final deadline for ‘estimated tax’ payments for the prior calendar year,” the office said in the report. “Estimated taxes are paid mainly by individuals reporting capital gains, business income, and other income not subject to withholding.”
Another reason, the analyst’s office said, may be that wealthy residents, who have to pay higher state income levies retroactively under a tax increase voters passed in November, chose to pay a portion of their obligations now instead of in April. Or it simply could be that the higher state rates are generating more revenue than forecast as the economy improves.
“As we always caution, you can’t assume or build a long-term trend -- good or bad -- off of one month’s worth of data, because any number of factors can swing one month either way,” said H.D. Palmer, Brown’s budget spokesman in Sacramento.
While revenue this month has already topped estimates by $5 billion, reconciliation after the end of the month may change the final tally, the office said in the report. Personal income-tax withholdings are 12 percent higher than projected, while estimated payments already received are more than double the amount anticipated for the month, according to the report.
Brown, a 74-year-old Democrat, persuaded voters in November to impose the highest statewide sales tax in the U.S., at 7.5 percent, and to boost levies on annual income starting at $250,000 -- reaching 13.3 percent on those making $1 million or more, the most of any state. Revenue forecast to rise by $6 billion annually for seven years under the temporary increases.
The tax boost and spending cuts mean the state will end fiscal 2014 with an $851 million budget surplus, the first in a decade, according to a spending plan Brown released this month.
The analyst’s office said that while it should have a better idea in May as to why revenue rose so much this month, it may not have a firm answer for as much as a year.