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California Tax Revenue Billions Higher Than Expected, Thanks in Part to Federal Help

Saturday, October 24, 2020

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(The Sacramento Bee)

From July through September, California collected $8.7 billion more in tax revenue than anticipated, according to the state’s Department of Finance, a bright sign amid a year of devastating economic news.

The numbers reflect the positive effect of federal aid, which came in the form of one-time $1,200 checks for individuals and weekly $600 Pandemic Unemployment Assistance payments for people who lost jobs because of the coronavirus outbreak. They are also partly from taxes on 2019 income, when the economy was booming.

Additionally, the numbers are higher than expected in part because the pandemic has not hurt high wage earners particularly hard, many of whom have kept their jobs and continued to work from home. California’s budget relies heavily on the state’s highest earners because of the state’s progressive income taxes.

The numbers are a positive sign, but Department of Finance spokesman H.D. Palmer said they should be viewed with some caution.

“Certainly it’s good to see that revenues are coming in well ahead of where we projected,” he said. “But we have to view it in the context of everything else that’s out there.”

Federal stimulus money, for example, has run out.

Democrats and Republicans in Congress haven’t been able to reach a deal to provide more aid, so it’s unclear if Americans will get additional checks and expanded unemployment benefits, or if states and local governments will get more help.

Meanwhile, California’s unemployment rate was 11% in September, way up from a pre-pandemic rate of 3.9%.

The Department of Finance has projected that the state would face an $8.7 billion deficit next fiscal year, even after making cuts to offset a $54 billion deficit this year. The better-that-expected revenue returns might mean a lower projected deficit in time for Gov. Gavin Newsom’s next budget proposal, which is due in January.

But Palmer noted that other factors will also affect that projection. They include changes to enrollment in public assistance programs, including food aid and health care for low-income people, as well as future actions by the federal government.

The pandemic, itself, also continues to be a factor dragging down the state’s economy. Right now, California has managed to keep its case rates relatively low, but that could change as colder weather drives people inside, where the virus spreads more easily.

Category: Economic News, California

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