We predicted there was no tax ‘windfall’
February 19, 2013
By John Seiler
The office of Gov. Jerry Brown and the Los Angeles Times finally are catching up with what we reported earlier here on CalWatchDog.com. The Times reports today:
“SACRAMENTO — The surge of revenue that showed up unexpectedly in state coffers last month may well be offset by a revenue dip in coming months, according to Gov. Jerry Brown‘s administration.”
But here’s what Chriss Street wrote here on Feb. 11, eight days ago:
“In January, California state tax collection beat Gov. Jerry Brown’s 2013-14 budget projections by $4.3 billion, or 39.1 percent. The out-performance was due to two expected one-time events that took place: $1 billion in delayed sales tax deposits and $3.3 billion of taxes on capital gains, dividends and bonuses collected in January for a prior period.
“But something should be very disturbing to giddy state politicians and lobbyists who are cranking up for a new spending spree: January sales taxes plunged by $582.7 million, or 27 percent. It seems that Taxifornia finally raised taxes so high that affluent residents are moving their investments and spending elsewhere.”
April Come She Will
“Taxpayers were paying a share of their bill early, getting income off their books in the hope of limiting exposure to the tax hikes that recently kicked in.
“The administration was expecting that money to arrive in April. Now, officials are saying it won’t, and that just as January’s receipts soared, they’ll be offset by a spring plunge.”
I had a little bit different take on what’s happening, but noted things were not going turn out as the Brown administration expected. I wrote on Jan. 17, more than a month ago:
“[April 12″ is the last business day before Tax Day, which this year falls on a Monday, April 15.
“April 12 is important because that’s the date rich people will have to cash in some of their stocks and bonds to pay, on April 15, for their taxes for 2012. And this year, rich folks are going to be especially walloped by California. That’s because Prop. 30 was retroactive. It is paid not only on 2013 income, but on income for 2012 — last year.
“If it isn’t withheld from their paychecks, normally rich people make quarterly payments on such income. But because the election was late in the year, on Nov. 6, they haven’t had much chance to do so. So the bulk of the added taxes will be due on April 15. For example, if someone has $11 million of income, the new “millionaire’s tax” applies the extra 3 percentage points from Prop. 30 to the portion above $1 million; that is, it will apply to $10 million. Which means $300,000 will be due.
“That means the person will have to, say, sell $300,000 in stock on April 12. Now, tens of thousands of millionaires will be doing the same thing on April 12. California is a large state with a lot of rich people.
“If this sell off on April 12 is large enough — and it could be — it could hammer equities in California companies. Of course, Californians can own stock in other states and countries; and investors from other states and countries invest in California companies. But in general, rich Californians invest more here than elsewhere, if only because many top executives have large investments in their own companies.”
Tax increases hurt
The bottom line is that people react to tax increases. When he was plumping for the $6 billion Proposition 30 tax increase last fall, Gov. Jerry Brown touted a study by two Stanford sociologists that rich people supposedly don’t leave to avoid paying higher taxes. I debunked that study here and here. Wayne Lusvardi did so here.
In about two months we’ll know much more about how Prop. 30 — and the federal Obamacare and fiscal cliff — tax increases have affected tax receipts and employment.
Meanwhile, keep reading CalWatchDog.com, where we give you the heads up before anybody else.