“They just posted the [California Income Tax Tracker] results for April 30. For the full month of April, income tax receipts were $7.336B. For April 2008, the total was $12.995B. This is a 44% decline. The fiscal YTD is down 20%. I suspect that the April numbers reflect actual tax returns that show lower incomes and more refunds than April 2008. But it also must indicate that wages/incomes are dropping at an accelerating pace.”
∙ California Personal Income Tax Daily Revenue Tracker [ca.gov]
Editor’s Note: The reader’s comment that gave birth to this thread:
I’ve been watching the state controller’s daily income tax revenue tracker since we discussed it a couple weeks ago:
http://www.sco.ca.gov/taxtracker.html
They just posted the results for April 30. For the full month of April, income tax receipts were $7.336B. For April 2008, the total was $12.995B. This is a 44% decline. The fiscal YTD is down 20%. I suspect that the April numbers reflect actual tax returns that show lower incomes and more refunds than April 2008. But it also must indicate that wages/incomes are dropping at an accelerating pace. I read on another site that the state’s $42B deficit will likely grow to $50B by the end of the fiscal year next month.
Nothing to worry about, right? We’ll just float the deficit. The market is up, banks apparently aren’t that stressed, and the state’s recent bond offerings were oversubscribed, right? We got our total debt to GDP ratio to 350% during the bubble – why not 400% now?
I’ve been following that too, FSBO, with particular interest since the polls started indicating the 5/19 ballot propositions on the budget are going down in flames.
But I don’t think the numbers are quite as bad as they seem at first blush. The current budget projected $38.3B in income tax receipts by 4/30 (so they had baked in a pretty big decline), and the actuals were $37.6B. Still not chump change, and something will clearly need to be done — technically, the state cannot float the deficit and must balance the budget, although there are lots of accounting tricks to play. The public is not big on tax increases with the economy so down, and it is hard to impose them after Prop 13. I predict lots of hefty “fee” increases for all sorts of services as those are easier to impose, although the gov’t still has to jump through lots of hoops.
I am surprised state bonds have sold so well. As a sovereign entity, we can always just default — no need to go through bankruptcy or anything.
The California personal income tax figures are amazing. April 09 receipts were $7.335B, 44% less than April 08 receipts. That’s a total collapse, and shows how dependent CA is on high earners and capital gains – obviously, employment is not down anywhere near that scale.
What’s amazing is that at the end of Feb, the new budget compromise figured that receipts would be up to $38.3B by the end of April, and the compromise budget was agreed on the basis of that projection. They missed by $700M, which means that even the latest budget is already obsolete.
Shut up, FSBO.
You and your impossible-to-manipulate stats showing incomes are down 20% this year!
That just doesn’t have anything to do with real estate pricing!
Why, I was just at an open house that was PACKED, PACKED! My anecdotal evidence is more of a real indicator of where housing prices are going, than that silly, accurate website of dramatically falling incomes.
In fact, here are three addresses of places that went higher than expected (ahem, in a city with more than 200X that many listings, most of which aren’t selling at all): 1542563 asdfgh street, 3654362 lkjhgf street and 236353734 tertyjh street. If a 0.5% surprise rate isn’t evidence of skyrocketing prices, (ahem, when the withdrawn rate is more than 10 times higher) I don’t know what is!
Next, I suppose you’ll try to tell us that loans above the conforming limits are harder to get this year than last year, or that NODs are skyrocketing. Wait, don’t bother: you should just keep that kind of info to yourself! We want anecdotes and exceptions! That’s far more indicative!
🙂
LOL Tipster. You aren’t even bothering to present spin doctored versions of real transactions any more? Now it’s just implied hyperbolic mockery of fake things? Interesting.
Argh I can’t say much cause I don’t want to jinx anything, but I’m in the middle of an offer on a home and I have all kinds of anecdotal evidence I’m dying to share. Oh well, maybe next week.
Hey, good luck missionite! I’ll keep my fingers crossed.
I’d make that “The public is not big on tax increases of any kind with the economy so down, and it is almost impossible to impose a property tax increase after Prop 13”.
People seem (relatively) fine with sales tax increases, more than a few sales tax raising ballot initiatives have passed in the last decade or so.
Pete Wilson tried to levy a tax on junk food, and it was repealed a short time thereafter (IIRC).
Personally I thought 236353734 tertyjh street was under priced.
lolcat, you’re crazy as the knife catchers! 236353734 tertyjh street had no curb appeal, all the interior pics were photoshopped, and check it out on Mapjack… It’s across the street from some beach in Taiwan! Besides, while it might work for some, I’m just not fond of Dwell interiors.
And, green? They DARE to call it green?? No house can be considered green unless it’s made out of recycled newspapers and organic flour.
Seriously, according to the fundamentals, it should have gone for 110% under asking.
The same strong contraction of income tax revenue happened in the dot com bust. The Legislative Analyst Office has a lot of good information about that. The majority of California tax revenue is income tax on those who earn $200k or more. These people in general have a great deal of flexibility in how they recognize income. As soon as a downturn gets bad these high earners hunker down and revenue for them and thus the state plummets. Changing the tax structure would be nearly impossible even if someone had strong ideas about how best to do that, but there is no popular alternative.
The 800 pound gorilla of SF public libraries is the domination of the libraries by the homeless. There’s a good comment on curbed about this.
Brahma wrote:
> People seem (relatively) fine with sales
> tax increases, more than a few sales tax
> raising ballot initiatives have passed in
> the last decade or so.
I don’t worry about sales tax much since I buy most things on line (from out of state firms that don’t charge me tax). As more and more people learn that it only costs $10 to mail a $200 digital camera and you save ~$20 in sales tax it will really hurt the state since they will not only lose the tax revenue, but the retail jobs..
I don’t worry too much about sales tax increases, either. I love the irony of supposedly “progressive” California relying so heavily on the most regressive of taxes, sales taxes.
Obviously, anyone sensible tries to minimize sales taxes. However, they do get you on gasoline.
CA is a very tax unfriendly jurisdiction, and I’ve got to believe that it is killing the golden goose. Sure, it’s a wonderful place to live, and if you are a centi-millionaire, then you have a number of strategies available to you to minimize the tax burden of living here. But for “average” wealthy people who are not geographically tied to the area, business owners, and for W-2 earners who make a good living, I’d think other states are looking more appealing all the time.
It is funny that people seem to be fine voting in higher sales taxes. I suspect it is because they package them in nice, minimal 1/4% or 1/2% increments and sell it as if it is free money. But at least sales taxes are relatively steady from year to year and offer some predictability. Prop 13 makes it so difficult to raise taxes that the sales pitch is critical.
FormerAptBroker, you still owe the sales tax on on-line purchases!
Trip,
Imagine if FTB ever really started a visible audit campaign on use tax declarations?
I think it’s much easier for the state to push for an internet sales tax, which is the source of most use tax avoidance nowadays (are you listening, FAB? 🙂 ).
On the question of anecdotes vs. fundamentals, I think both the bear and bull case need some work – especially as presented above.
Basically the bears show that the fundamentals are quite negative, the overall picture in the Bay Area is negative, and have some negative anecdotes within SF itself (largely but not exclusively in SOMA). The bulls claim that SF is different from the rest of the Bay Area (in fundamentals like income and as a market), say that SOMA was overbuilt or whatever, and show some positive anecdotes.
The problem is that both perspectives can be simultaneously true… I could totally imagine that SOMA is collapsing, Pac Heights is not, and other places are somewhere in between. We need a neighborhood-by-neighborhood “apples only” (or suitable adjustments made) survey of sales for the last year or so, but that takes time, and possibly hard-to-acquire data.
But back to our topic: how will this news impact SF real estate? What services will be the first to be cut? And will all those propositions we’re voting on in two weeks fail?
“how will this news impact SF real estate? What services will be the first to be cut?”
I’m not so sure that the state’s severe fiscal problems will directly affect SF real estate. I think the key point is that the extreme drop in tax receipts reflects an extremely weak economy. That is having a big impact on SF real estate. The market was weakening even when the economy was still strong. Now that it is tanking, with more pain to come, the RE decline continues to accelerate. The big drop in April sales noted on another thread is consistent with this.
The propositions will fail – I guarantee it.
Generally, to be successful, a prop has to start out with high support because it steadily diminishes as time goes on — doesn’t matter what prop you’re looking at, if it starts at 70% it’ll end up at 51%, if it starts at 50%, it’ll lose. (rough sketch). And there is no public appetite for this now, regardless of the consequences.
The “May revise” will also have lotsa assumptions and the accounting gimmicks Trip talked about.
Repubs. have been very successful at de-linking taxes from services in the minds of the general population. According to joe-sixpack, taxes just disappear into the maw; or actually go into the pockets of politicians. People say without irony that they want lots of services that they use and lower taxes.
Hence you get opinion polls that are 75% against raising taxes and at the same time 75% against making cuts to schools and healthcare.
Arnold will try to drum up support again by trying to make people realize the link between taxes and more visceral services — parks/beaches last time, firefighters today. They’ll still fail.
I think the Repubs. will acutally see some short-term successes in “starving the beast”. This chronic imbalance has to break some time and I think there will be pretty drastic cuts to schools and healthcare — prisons too. Followed by wails. Followed by tax increases to restore the funding.
And by the way, I don’t think the real problems — over reliance on wealthy people’s income, prop. 13, prop. 98, etc., all the unintended consequences — will be fundamentally changed. We’ll see a switch to majority vote for budget/taxes first and Dems. will raise taxes.
Also before you see a change in prop. 13, prop. 98, etc., we’ll pass a redistricting measure when it’s coupled to an easing on term limits. That will increase compromise and decrease ideologues. Good good.
Waste, fraud, and abuse? If you go there you really are ignorant of the budget problems facing CA.
Rubicon, we can’t talk about waste, fraud, and abuse? They’re not at the core of our problems? We’ve crossed the Rubicon with the state income tax – it should be abolished, but you’re right that it will only go up (and up and up). If you don’t want to talk about waste, fraud, and abuse, what is your solution? What do you think is a fair total tax burden (fed, state, local, sales, property, excise, gas, car, etc, etc) for a typical “prosperous” California family? Is 50+% enough?
The overall tax burden in California is at most, moderate:
http://money.cnn.com/pf/features/lists/taxesbystate2005/
We have high income and sales taxes and low property taxes, mostly due to Prop 13.
Every state in the nation is grappling with a shortfall right now, it is hardly just a California problem, but with our dysfunctional legislature and the unfortunate 2/3’s rule, it takes us longer to come up with solutions.
Californians want lots of goodies from their government but don’t want to pay for it, the problem is as simple as that.
“fair” is a pretty tough concept to tackle here. NYT article about euro semi-socialist state was #1 most read (or most emailed?) yesterday though, so people are interested.
Defining “taxes” is notoriously hard, but I think the LAO, which is respectably non-partisan, puts CA a little above avg. (high compared to homogenous podunk states, but CA is really only comparable to Texas, Florida and New York)
I’m continually amazed at how many people don’t understand the concept of a marginal tax rate. ie. 50% marginal tax rate equals 25% (or whatever) effective tax rate.
My point about “waste, fraud and abuse” is that it’s a red herring. Please define “waste, fraud and abuse.” To the extent it exists, it is de minimus. I think CA budget is over $300 billion if you count fed. and special fund $$. CA gross product is over $1 trillion.
The “waste, fraud and abuse” b.s. detracts from the valid discussion about the size of gov’t.
NVJ, you’re exactly right that the typical CA tax burden is not unreasonable (to me, at least). The problem is that CA has decided to impose a far higher tax burden on the top few percent of earners, and it thus its tax receipts vary wildly from year to year as that tier not only has uneven income but it can choose when to recognize it.
I noted this on an earlier thread — I would have no problem with this scheme IF the state had the discipline to bank excess funds in the flush years. But it doesn’t — it expands spending and cuts other revenue sources.
California will never have that discipline. So the only way out is to impose the tax burden more broadly, which is what we will see. I suspect a lot of this burden will be regressively borne by those who do not recognize that certain new costs and fees are “taxes.”
Really good article in the recent New Yorker on Holland’s tax/spending system. 51% federal income tax rate!! But for what you get for that, it is a bargain compared to our wasteful system, and I’d take the Dutch system in a heartbeat.
The overall tax burden in California is at most, moderate: http://money.cnn.com/pf/features/lists/taxesbystate2005
This is true for some but for me the Tax burden is 13.3% which is higher than any other state in the country because I didn’t buy a house 20 years ago.
funny, same article I referred to ^^^
It’s still on the New York Times website as the #2 most emailed article.
lolcat, you’re crazy as the knife catchers! 236353734 tertyjh street had no curb appeal, all the interior pics were photoshopped, and check it out on Mapjack… It’s across the street from some beach in Taiwan!
LOL! you meant Thailand, right?
And, green? They DARE to call it green?? No house can be considered green unless it’s made out of recycled newspapers and organic flour.
The construction company has to collect these materials less than 0.5 miles from the house and delivers by pedicab. Plus the water to mix the 2 has to be hand-pumped ocean water.
Just checking back in on this thread with the final revenue numbers for California in April:
“Compared to April 2008, General Fund revenue in April 2009 was down $6.3 billion (-39%). The total for the three largest taxes was below 2008 levels by $6.3 billion (-40.3%). Sales taxes were $452 million lower (-50.9%) than last April, and personal income taxes were down $5.7 billion (-43.6%). Corporate taxes were $142 million below (-8.6%) April of 2008.”
http://www.sco.ca.gov/Press-Releases/2009/05-09summary.pdf
Wow. That sales tax figure is especially surprising (I’m guessing a big part of that is the collapse in gas prices and car sales).
The finances of this state are an utter fiasco. Mish had a worthwhile piece today surveying what a joke they’re becoming:
http://globaleconomicanalysis.blogspot.com/2009/05/california-is-complete-basket-case.html
I’d encourage everyone to vote “No” on Props 1A thru 1E (vote no on 1F too – it’s just meaningless marketing pablum), but it looks like sensible people are finally getting sick and tired of the nonsense and are sending the props down to defeat anyway.
One more fairly tangential point to add. A guy in my office was with the Ahhnold administration the last several years. He told me that each April the last few years the Franchise Tax Board would be sweating over a multi-billion dollar revenue shortfall and then the tax checks from just a handful of the big boys would come in — Steve Jobs, Sergey Brin, Larry Page, Larry Ellison. And then they’d breathe a sigh of relief and make budget.
So it all hinged on literally about 10 individuals. Ridiculous. Props 1A – 1E are DOA. On to Plan B, which is . . . (oh yeah, we don’t have one).
I concur with the recommendations for voting on the Props. Just say NO. I had noticed the 50% sales tax decline too. I still can’t imagine how sales tax receipts could have declined by so much. And these shortfalls are only going to grow larger. I see that the controller is not updating the daily tracker for May – it’s probably too painful – or maybe he was ordered not to.
Here’s an interesting article in CFO magazine about state tax revenue shortfalls and what states are doing about it:
http://www.cfo.com/article.cfm/13526142/c_13526469?f=magazine_featured
Note that California is viewed by CFO’s as the worst state in the country for tax issues. From perceptions of fairness to impacting decisions on whether to locate or expand in the state, California is dead last in this survey. It has been said many times but we are killing the golden goose. Who is going to lead us out of this mess – Gavin Newsom? Do you think Ronald Reagan could win a statewide election in 2010? No way – we now prefer politicians in the mold of Chris Daly and Carol Migden.
Trip:
Re sharp decline in sales tax: how many sodas and boloney sandwiches does it take to equal the tax on a $175,000.00 sports car, or $500,000.00 in furnishings for a mini-mansion? California state legislature is trying to pick up nickles in the street, at the time when the pockets loosing those nickles are empty or leaving the state. Sales tax reciepts decline by %45, so raise the sales tax *again* %1/2. Not only do the numbers not add up, the legislature is nuts to think that black market goods don’t increase as sales taxes are increased. Unfortunately, most state legislatures are run by equal idiots.
One thing I found interesting about my little tiny business is that when we finally started selling our product last October (after years of agonizing product development … we go to market in the worst recession in 30+ years. Oh what fun.), all our sales have been either in Europe or the east coast. Not ONE customer in California… not sure what that says about industry in California except that perhaps there is very little of it relatively speaking.
Lots of programmers out here, though, that’s for sure.