California’s revenue will grow $6.6 billion more than forecast through fiscal 2012, reducing the most populous U.S. state’s budget deficit and trimming the proposed extension of higher taxes and fees, Governor Jerry Brown said in announcing a revised budget.
The deficit estimate shrank to $9.6 billion from about $15.4 billion, Brown said in revising his budget proposal for the fiscal year that begins July 1. Bloomberg
The Tax Policy Institute takes a
closer look:
What accounts for the conflicting news about the state’s income tax revenues? Those February refunds were probably the downside of a budget gimmick California used to help balance its 2009-2010budget. In passing it’s budget the state increased income tax withholding but didn’t actually raise tax rates. As a result, Californians effectively gave the state a one-year interest-free loan that was repaid in the form of refunds during the recent tax season. People who expected higher refunds probably filed early, while those who figured they still owed tax waited until April to file.
The higher income tax receipts may also be the result of questionable federal tax policy that let individuals convert regular IRAs to Roth IRAs in 2010 . True, taxpayers could have postponed paying the taxes associated with these conversions until 2011 and 2012. But many—myself included—opted to pay now to avoid potentially higher future federal taxes. Depending on how many did that, those higher short-run tax revenues may result in lower collections down the road when retirees withdraw Roth funds tax-free.
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