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California April Tax Revenue Nearly $3 Billion Under Projection

By: Joseph Bishop-Henchman

From December 2009 through March 2010, California collected $29.2 billion in state taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. revenue, beating its projection of $26.5 billion. The state consequently expected that April, the month when taxpayers pay remaining income taxes, would bring in $10.5 billion. They were nearly $3 billion off:

Economists and finance officials are scurrying to analyze the data to determine what caused the April swoon. Some suspect it sprang from new laws that changed the rhythm of tax payments. It could also reflect the growth in unemployed residents eligible for refunds.

The April collections came almost entirely from personal income taxes. Most corporate and sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. es have not yet been reported. If they, too, come in below projections, the state’s budget problem would grow worse.

The decline sets Sacramento back as next month’s deadline for passing a budget approaches. Lawmakers face a deficit of $18.6 billion – about 20% of general fund spending – with no easy options left for addressing it, as they have already cut state services severely and temporarily raised income, sales and vehicle taxes.

States have been struggling for two or three years now with revenue estimates that turn out to be overly optimistic. This can create problems because the estimates are used when lawmakers sketch out spending commitments for the state budget. When the expected revenue doesn’t materialize, budget shortfalls open up between planned spending and actual revenue.

More on state taxes and budgets here.