Brown tax hike plan may bring in less than estimated
The governor says a sales and income tax hike could bring in $6.9 billion a year. The Legislative Analyst's Office says it's likely to generate just $4.8 billion in 2012-13.
By Anthony York, Los Angeles Times | http://lat.ms/x9Za6X
Gov. Jerry Brown wants to boost the state sales tax by half a cent and increase levies on incomes of $250,000 or more for the next five years. (Ken James, Bloomberg / January 5, 2012)
January 9, 2012, 9:13 p.m. :: Reporting from Sacramento— Gov. Jerry Brown's plan to raise taxes on sales and high earners could bring in billions of dollars less than he is counting on to help balance the state's books, according to the Legislature's main financial advisor.
Brown, who hopes to put his proposal before voters in the fall, says it would generate nearly $6.9 billion annually to help close the budget deficit over the next five years. But the nonpartisan Legislative Analyst's Office estimates that it is likely to generate just $4.8 billion in the 2012-13 budget year and about $5.5 billion in subsequent years.
The governor's plan would boost the state sales tax by half a cent and increase levies on incomes of $250,000 or more for the next five years. It is the linchpin of the $92.6-billion spending blueprint that Brown unveiled last week. If voters reject the tax measure, Brown says, it would mean billions less for schools next year and more cuts in both of California's public university systems.
A joint letter from Department of Finance director Ana Matosantos and Legislative Analyst Mac Taylor released Monday says that predicting how much Brown's tax measure could yield is difficult because of its partial dependence on income taxes. The money the state receives from top taxpayers can vary wildly from year to year.
"Their capital income is highly volatile from one year to the next," the letter states. "…Given this volatility, estimates of the revenues to be raised by this initiative will change between now and the November 2012 election."
Brown says the proposed taxes would virtually eliminate the state's budget deficit in five years. But the analyst's office was more guarded in its projections, estimating that California will face deficits of more than $5 billion a year through 2017.
Department of Finance spokesman H.D. Palmer said the Brown administration assumes higher incomes and capital gains from the state's top earners in coming years than the analyst does.
"Currently, 1% of the total number of personal income tax returns will generate more than 40% of the overall personal income tax receipts," Palmer said. "So small swings can swing your assumptions."
Jason Sisney, a spokesman for the analyst's office, said the two parties also have differing interpretations of federal tax law.
"The finance revenue model assumes that the Bush tax cuts will expire in 2012, as they are currently scheduled to do. Our forecast assumes that they are extended," Sisney said.
Palmer said the administration would release revised revenue projections in May, after April tax receipts are counted.
Some economists say Brown's administration may actually be underestimating California's economic recovery.
Christopher Thornberg, a principal at the Los Angeles consulting firm Beacon Economics, expects the state to pull in more revenue than the administration has forecast.
"Their revenue numbers for next year are absurdly low," Thornberg said. "They seem to be running this on a worst-case scenario."
Times staff writer Chris Megerian contributed to this report.
Legislative analyst offers lower estimate for Brown's tax-hike initiative
By Kevin Yamamura/Sacramento Bee | http://bit.ly/xDl7HP
Tuesday, Jan. 10, 2012 - 7:04 am :: Less than a week after Gov. Jerry Brown built his new budget on a $6.9 billion tax hike initiative, the state's top fiscal analyst said his measure would fall $2.1 billion short.
But the nonpartisan Legislative Analyst's Office said in a letter issued Monday that Brown's tax proposal will generate only $4.8 billion in the first budget cycle.
Jason Sisney, the analyst's office chief forecaster, said the two offices were in general agreement on how much sales tax revenue the state would raise under Brown's plan. But they disagreed over how much the state would obtain from the wealthy, whose income is extremely volatile.
"We're still working to analyze some of those differences, ... but given the nature of them, it has to do with our high-income assumptions," Sisney said.
The analyst's office and Department of Finance included separate projections in a joint letter to Attorney General Kamala Harris used to prepare voter information for petitions.
The difference doesn't have immediate consequences since lawmakers do not plan to act until May or June, when more income data will be available. If Brown's measure qualifies for the Nov. 6 ballot, the analyst's office would review the initiative again in July.
But if the analyst's forecast holds true, state leaders would eventually have to find additional cuts or revenue beyond Brown's proposal.
The governor released a $92.5 billion general fund plan last week that, besides raising taxes, would impose $4.2 billion in cuts. Those include halving the amount of time parents can receive welfare payments without finding a job and eliminating 71,000 subsidized child-care slots for working low-income parents.
If voters reject his taxes, Brown wants to cut more than $2 billion in school programs compared with this year's funds, though doing so relies on a legally questionable budget maneuver and reneging on a promise made last year to educators. The state also would continue sending $10 billion in late payments to districts.
The joint letter says Brown's tax proposal would result in a net increase in state spending on K-12 schools and community colleges, but it doesn't say specifically how much, only that it "could be in the billions of dollars annually."
The analyst estimates that Brown's proposal would raise $5.5 billion annually over the next three fiscal years on average; the governor's Department of Finance has pegged it at $6.9 billion. In 2016-17, when the plan would cover half a fiscal year, Brown says it would raise $3.4 billion, while the analyst says $3.1 billion.
All told, the Department of Finance estimates Brown's plan would generate $31 billion over five years; the analyst says it would raise $24.6 billion.
Finance's assessment suggests the bulk of money would come from upper-income earners each fiscal year. The analyst's office says it's a nearly even split during the three full years of implementation, with slightly more money coming from the half-cent sales tax hike.
‘Volatility’ in Capital Gains Casts Doubt on California Tax Plan
By James Nash and Michael B. Marois /Bloomberg News | http://bloom.bg/vZLP5h
Jan 9, 2012 9:01 PM PT :: California Governor Jerry Brown’s proposed sales- and income-tax increases are likely to raise $2 billion less than projected, largely because of “volatility” in taxes on capital gains, the state’s fiscal analyst said.
Brown’s five-year boost in income-tax rates and four-year increase in sales taxes would generate about $4.8 billion in the next fiscal year, less than the $6.9 billion Brown estimated in his budget last week, according to a report yesterday from the Legislative Analyst’s Office.
The “highly volatile” nature of income on capital gains complicates attempts to forecast the effects of Brown’s tax plan, which would raise rates on the top 1 percent of earners, the report said.
“The administration assumes more income, from more filers,” Jason Sisney, the analyst who wrote the report, said by telephone yesterday. “Capital gains are a big part of that.”
H.D. Palmer, spokesman for the Finance Department, said the volatility could cut both ways.
“There are some people who say our estimates are conservative,” Palmer said in a telephone interview. “We don’t include anything about a potential IPO by Facebook, for example.”
Brown, a 73-year-old Democrat, wants to raise income taxes on individuals making at least $250,000 a year to 10.3 percent from 9.3 percent. For those earning $300,000 to $500,000, the rate would climb to 10.8 percent. For single filers with income above $500,000, it would jump to 11.3 percent. Californians with income of more than $1 million are now taxed at 10.3 percent.
The governor also wants to boost the state retail-sales tax rate to 7.75 percent from 7.25 percent. He wants voters to approve the increase in a November election.
If the tax fails, the state would cut $4.8 billion from public schools, the equivalent of slicing three weeks from the academic year, Brown said Jan. 5.
Brown’s administration already plans to use $500 million from auctioned carbon allowances under the state’s new cap-and- trade program to help balance the budget, Palmer said yesterday.
If Brown’s tax measure passes yet fails to yield the projected revenue, schools wouldn’t necessarily be cut, Palmer said. State budget analysts revise their economic forecasts each May, he said.
Marginal Tax Rates
Brown’s budget estimates assume that reductions in marginal tax rates shepherded by President George W. Bush in 2001 and 2003 will be allowed to expire at the end of this year, Palmer said. The legislative analyst, by contrast, predicts the cuts will be extended by one year, Sisney said.
Under Brown’s scenario, many higher-income earners would accelerate their capital gains into this year to take advantage of the lower tax rate, Palmer said. If the drop in rates is extended another year, the affected taxpayers likely would defer gains until 2013, Sisney said.
In 2008, about 63 percent of earnings reported by Californians making $500,000 or more came from capital gains and other non-wage income, according to the legislative analyst’s report.
from the lao report | the entire report is HERE: http://www.lao.ca.gov/ballot/2011/110784.aspx
Significant Volatility of PIT Revenues Possible. Most of the income reported by California’s upper-income filers is related in some way to their capital investments, rather than wages and salary-type income. In 2008, for example, only about 37 percent of the income reported by PIT filers reporting over $500,000 of income consisted of wages and salaries. The rest consisted of capital gains (generated from sales of assets, such as stocks and homes), income from these filers’ interests in partnerships and “S” corporations, dividends, interest, rent, and other capital income. While upper-income filers’ wage and salary income is volatile to some extent (due to the cyclical nature of bonuses, among other things), their capital income is highly volatile from one year to the next. For example, the current mental health tax on income over $1 million generated about $734 million in 2009‑10 but has raised as much as $1.6 billion in previous years. Given this volatility, estimates of the revenues to be raised by this initiative will change between now and the November 2012 election.
Revenue Estimates. The volatility described above makes it difficult to forecast this measure’s state revenue gains from high-income taxpayers. As a result, the estimates from our two offices of this measure’s annual revenue increases vary. Between 2013‑14 and 2015‑16 (the three years in which both the PIT and SUT increases would be in effect for the entire fiscal year), the LAO currently forecasts an average annual increase in state revenues of $5.5 billion, and DOF currently forecasts an average annual increase in state revenues of $6.9 billion. For the 2012‑13 budget, the LAO forecasts this measure would generate $4.8 billion of additional revenues, and DOF forecasts $6.9 billion of additional revenues. (This essentially reflects six months of SUT receipts in 2013 and 18 months of PIT receipts from all of tax year 2012 and half of tax year 2013.) In 2016‑17, the measure’s PIT and SUT increases would be in effect for only six months of the fiscal year before expiring. In that fiscal year, the LAO forecasts this measure would generate $3.1 billion of revenues, and DOF forecasts $3.4 billion of revenues.