Posted by: Josh Lehner | June 8, 2010

Behind the May Revenue Forecast

Much has been made about how weak the payments received during the April tax season were, but just how bad were they?  Historically low.  While recognizing that there are myriad ways of looking at these figures, below is a simple graph of the net receipts (payments minus refunds) from taxpayers from February through April going back to 1996.  Remember that the figures for the current year include any additional payments that were the result of Measure 66.  Without the tax rate increases, the graph below would look even worse.

For anyone wondering if part of the explanation is a simple “scaling” factor (i.e., the more recent larger deviations are the result of simply larger total transactions), the following graph shows each year’s net receipts as a percentage of the total “volume” of receipts – the absolute dollar value of payments plus refunds.   This effectively adjusts for the fact that there were nearly three times as many dollars processed (either received or refunded) in, say, 2007 compared with 1996.  As with the previous look, any money collected as the result of Measure 66 served to lower this deviation, making the result even more stark.

Finally, there are undoubtedly more than a few smaller reasons why we saw what we saw in April.  However, preliminary numbers show that the biggest culprit was capital gains.  Following a 60 percent decline in capital gains income from the 2007 tax year to the 2008 tax year, we were expecting an additional 10 percent decline for the 2009 tax year.   This was in line with what many other states were projecting (5 percent to -20 percent) based on an informal survey conducted early last winter.  Unfortunately, preliminary estimates show that capital gains income likely dropped at least another 50 percent for the 2009 tax year.  Going forward we believe that we will see an uptick in capital gains income, but carry forward losses and low levels of business transactions will limit growth.


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