The Nutshell: The LAO and the state Dept.of Finance have different estimates of the potential income from Brown's proposed tax increases -- and neither sees enough money coming in to sustain threatened programs at current levels.
The independent, nonpartisan Legislative Analyst's Office (LAO) has released a report forecasting $2.1 billion less in potential increased tax revenues for the state in '12-'13 than the projected potential tax revenue figure of $6.9 billion from the Dept. of Finance on which the Governor based his recently released proposed budget/tax increase initiative. The difference is primarily based on how each office evaluates the volatility of the high-income/capital gains sector.
At left, LAO state finance director Jason Sisney.
From the LAO report:
...Between 2013‑14 and 2015‑16 (the three years in which both the [PIT: personal income tax] and [SUT: sales and use tax] 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....
Kevin Yamamura, reporting in the Sacramento Bee summarizes the forecast gap thusly:
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 [proposed] half-cent sales tax hike.
Yesterday, DOF's director Ana Matosantos and Legislative Analyst Mac Taylor released a joint letter, acknowledging the wide swings in revenue from year to year the state receives from the highest earners.
In this morning's Los Angeles Times, Anthony York reported:
"[High earners] 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.
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