December's ugly stock market is very bad news for California's finances. That's because the state's top 1 percent of personal income tax earners — roughly 164,000 tax returns — generate about half of the personal income taxes in California.
That's right, 1 percent of tax earners pay half of all personal taxes in California. The article later points out that 70% of the state's total general fund revenue and transfers (not exactly sure what is a transfer) is via personal taxes. So that means 35% of all general fund revenue and transfers is driven by the 1 percent.
California missed its state revenue projections in October of this year by 6 percent, or more than $412 million, when the S&P 500 fell almost 7 percent and the Nasdaq sank 11 percent — its worst monthly decline since the 2008 recession.
At least for October, the revenue miss was fairly aligned with the S&P 500. Yet, the article points out, and I figure this should be well known, that California is actually aligned better with the Nasdaq.
In Inc, Fred Wilson (a venture capitalist) predicted:
I expect that we will continue to see big tech companies invest and grow their businesses and do well in 2019. I expect we will see IPOs from big names like Uber, Lyft, and Slack, although I also expect those deals will get priced well below the lofty expectations they have in mind right now.
I'm sure that California made certain assumptions regarding revenues associated with potential IPOs from Uber, Lyft, etc. If Fred Wilson is correct and IPOs result in less than anticipated capital gains, that could also hurt the state.
I will admit that I'm a bit surprised that California missed its revenue projects in October. I figured that as the market began to fall, more than anticipated stock selling would be made to help off-set any assumed increases in the stock market. At least as of October, that was not the case.
No comments:
Post a Comment