Some Good State Budget News

No, the headline isn't a mistake. At least one of California's revenue streams is beginning to look up.

According to the most recent data, state personal income tax revenues increased by 32 percent the last quarter of 2010 from the same quarter in 2009.

That's big news, and it could mean an easing of our fiscal constraints in the months to come.

Three taxes in California account for financing about 95 percent of the state's general fund. Of those, by far the largest is the state income tax, which accounts for about 53 percent (sales taxes and bank/corporation taxes account for 32 percent and 10 percent respectively.)

The surge in the October-December 2010 collection period means something in the neighborhood
of two to three billion dollars more than the state expected, which could mean a reduction in the anticipated $25 billion shortfall through June 30, 2011. 

Revenues can just as easily dip during this quarter, but the signs look hopeful for recovery, albeit at an incredibly slow pace.

The bad news is that the state has become so dependent upon income taxes that surges and declines in this one revenue stream can really send California's budget making into a tizzy. That's why some people believe that California needs to restructure its tax system so that revenues come from several sources in a more balanced manner.

To that end, some experts have suggested lowering state income tax rates and broadening the sales tax. Others have suggested splitting up property tax schedules, with the post-Proposition 13 formula continuing for homeowners but higher taxes for businesses. Several other ideas are now under consideration as well.

The bottom line is this: As long as California relies disproportionately on the income tax, the state treasury will soar when the economy thrives and go empty when the economy dives. It's a problem that must be addressed through a redistribution of revenue streams.

For now, however, let's enjoy a little good news. These extra revenues won't cure our current budget crisis, but at least they may give the state a bit more breathing room than most people expected.

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