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As a result of twice extending the 2022 tax filing date for most of California, the state’s revenue picture remains unclear. Daily tracking by the State Controller, however, indicates that the crucial personal income tax revenues are coming in below budget projections.
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In general, most overall economic indicators are tracking close to the projections underlying the current budget bill. The more economic-sensitive sales and use taxes are slightly above projections through the end of October. Total personal income is only 0.6% lower than expectations in the most recent data from the second quarter. Employment, however, has fallen in the past four months.
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The totals, however, are less relevant as the budget’s health has become heavily dependent on only a portion of the taxpaying base, both by income and geographically. In the latest data from 2021, only 8,519 taxpayers paid a quarter of all personal income tax. Over 40% of personal income tax paid by state residents comes from the Bay Area, making the state budget highly vulnerable to fluctuations in this region’s economy, particularly the tech industry.
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Persistent high unemployment claims contribute to a substantial federal unemployment fund debt that is projected to worsen, with California’s program covering a significantly larger labor force compared to other states.
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