California’s Revenue Estimates in Governor Newsom’s Proposed 2020-21 Budget
Projected General Fund Revenues are up 3% for a total of $151 billion. Personal income tax revenues are down 1% and corporate income tax revenues are up 18% because many proprietorships are switching from SubChapter S to C Class tax entities to take advantage of the big cut from 35% to 21% in corporate tax rates under the Trump tax cuts.
Sales and use tax revenues are up by $1 billion and are projected to increase at 3% over the next five years. Consumers are purchasing many more services (exempt) and far fewer goods (taxed) as a percent of their incomes.
Personal Income Taxes (68%) of the General Fund taxes are projected to increase at 2.2% over the next five years due to the shift in the tax status from SubChapter S to Chapter C corporations. Corporate taxes are expected to increase at 4.6%, but they are only 10% of state General Fund revenues.
As a state, we are highly dependent on the taxes paid by the top 1% who contribute 47% of all state Personal Income taxes. In the next recession, we will lose lots of tax revenue from these taxpayers, particularly as Capital Gains revenues will dip precipitously, but the state’s Rainy Day funds are designed to insulate us, unless it is a very severe and long lasting recession.
Property tax revenues are projected to increase by 5.7% in the coming year; 42% or $33 billion is allocated to K-12 education.
Special Fund taxes are projected to be nearly $58 billion next year. These are funds dedicated to a specific purpose; as for example gas taxes and vehicle license fees are dedicated to state and local roads -- $19 billion. Revenues from the gas taxes are slightly down as people are driving more fuel efficient vehicles, including electric vehicles which use no gas or diesel.
Prepared by: Lucien Wulsin
Dated: 1/20/19