Taxifornia barely made budget in February, as personal income tax falls short

California barely made budget in February after two months of big deficits, but personal income tax collections fell short by another $137 million.

When Gov. Gavin Newsom was inaugurated in the morning of January 9, he proposed a record $144.2-billion spending plan for California's 2019–2020 budget.  Having campaigned as a social justice warrior, Newsom trumpeted plans to spend another $5.2 billion for "Cradle-to-Career" education, $1 billion more for earned income tax credits for the poor, and $100 million for the caravans of Central Americans refugees supposedly fleeing violence.

But later in the day, the state controller revealed that California tax collection missed budget in December by $4.82 billion.  A month later, the controller disclosed an added $2.87 billion shortfall in January and a 2018–2019 fiscal year net $2.41 billion deficit.

February personal income tax collection missed by another $137 million, but the budget was bailed above plan by $152 million in sales and $102 million in corporate taxes.  But California is still under budget by $2.29 billion for the June fiscal year.

California gained the title "Taxifornia," because it has America's highest state personal income tax rate of 12.3 percent, plus 13.3 percent tax on incomes over $1 million.  But the pain used to be shared with "Uncle Sam," due to unlimited federal income tax deductibility for state and local taxes, known as the SALT deduction.

But President Trump's "Tax Cuts and Jobs Act of 2017" capped SALT deductions at $10,000 for both single and joint taxpayers.  The new rules have hammered residents of high income and property tax states, like California, New York, and New Jersey.

With an average "SALT" bill of $18,438 in 2015, the ability to deduct all SALT payments saved the average Californian about $4,000 in federal taxes.  But implementation of the TCJA for the 2018 tax year is expected to cost the average Californian $1,800.

According to the Cleveland Federal Reserve Bank, the resulting higher tax payments will also have a negative wealth effect of about 7.9 percent on California home values.

A Sacramento Bee study based on U.S. Census data found that about 130,000 more residents left California than arrived from other states in 2017.

The Newsom administration is afraid the combination of higher effective federal tax rates and falling home values will accelerate the "negative net domestic migration rate," as very wealthy Californians "vote with their feet" by moving to low-tax states.

The nonpartisan California Legislative Analyst Office stated that the budget could still get back on track if many of California's high-income taxpayers have been delaying filing quarterly tax returns until April 15.  But Taxifornia happy talk sounds more like "whistling past the graveyard." 

https://www.americanthinker.com/blog/2019/03/taxifornia_barely_made_budget_in_february_as_personal_income_tax_falls_short.html