Firearms and Ammunition Revenue Update February 21, 2025
In the first half of 2024-25, preliminary revenue for the firearms and ammunition excise tax was $29 million.
Updated "Big Three" Revenue Outlook February 20, 2025
Upside to Governor's Budget Revenues. Driven by the stock market, recent income tax collections have been decidedly strong. Reflecting this trend, our revenue outlook continues to improve and now suggests there is upside potential relative to the revenues assumed in the Governor’s Budget. Whether or not the stock market surge underpinning these revenue gains is sustainable is impossible to say, but several hallmarks of prior unsustainable stock market booms appear present today.
Five Guidelines for Using Revenue Forecasts February 20, 2025
As part of building the state budget each year, the Legislature and Governor must make an assumption about how much revenue the state will collect. Because no one knows how much revenue the state will collect next year, leaders must rely on revenue forecasts. Both our office and the Department of Finance (DOF) provide periodic revenue forecasts that can be used for this purpose. These forecasts use the best available data to provide informed estimates of future revenue collections. Although they have limitations, they are important to the state budget process because they offer an objective foundation on which the budget can be built. In this post, we offer guidelines to help make the best use of these revenue forecasts—that is, to help them focus on the right questions, avoid overreactions, and be better positioned for the unexpected.
The 2025-26 Budget: Single Sales Factor for Financial Institutions February 13, 2025
Under current law, most multistate and multinational corporations are required to calculate their California tax liability based on the share of their nationwide sales attributable to California (known as the single sales factor). However, businesses in specific industries have an exemption allowing them to use a three-factor method that equally weights their property, payroll, and sales in California. The Governor's budget proposes to remove this exemption for financial institutions. Our assessment is that there is no clear justification for financial institutions to have an exemption from the single sales factor, either from a fair apportionment or tax incentive perspective. Therefore, our recommendation is that the Legislature approve the Governor's proposal. We also note that although this change may increase state revenues, there is limited support for the notion that a shift to single sales factor apportionment will have significant economic development effects.
The 2025-26 Budget: Partial Income Tax Exclusion for Military Retirement Income February 13, 2025
The Governor proposes to exclude from state income taxation up to $20,000 in annual military retirement benefits. The exclusion would be available to individuals with income below $125,000 ($250,000 for joint taxpayers.) Our assessment is that the economic and fiscal rationale for this proposal is weak. Nonetheless, we recognize that other factors often are relevant to the Legislature’s decisions. In assessing the administration’s proposal, the Legislature will need to decide if these other factors are enough to support this tax change. If the Legislature simply wants to provide limited tax relief to veterans, that might also improve veterans’ perceptions of the state, it could adopt the administration’s proposal. If the Legislature instead prefers that this tax expenditure have a clear economic or fiscal rationale, it could reject the administration’s proposal.
Income Tax Withholding Tracker February 13, 2025
PIT withholding in January came in nearly $1 billion (11 percent) higher the recent projections included in the 2025-26 Governor's Budget. The recent trend in withholding appears to represents an uptick in growth compared to the generally strong period last summer. Winter withholding has been running about 10 percent higher than the prior year, whereas the summer period was consistently in the 5 percent to 6 percent growth range. For the first time on record, the cumulative 12 month withholding collections surpassed $100 billion as of January 2025.
January 2025 Los Angeles Wildfires Impact on Local Property Tax Revenues February 10, 2025
The devastating Los Angeles County fires of January 2025 destroyed thousands of structures, causing significant damage and displacement. This post assesses the implications for property tax revenues. The county faces a $10 billion to $20 billion reduction in assessed property values, estimated to result in a $100 million to $200 million annual property tax revenue loss to affected local governments. The governor's executive order delays tax payments for 218,000 properties until April 2026. By themselves, we expect these delays will have minimal long-term fiscal impacts.
Monthly Jobs Report January 28, 2025
California's traditional jobs report suggests the state added 15,000 jobs in December, while a hybrid measure that has more closely tracked final jobs data suggests a smaller increase of 6,000 jobs. The state's unemployment rate rose to 5.5 percent, as the labor force grew slightly but fewer workers reported being employed.
California Housing Affordability Tracker (4th Quarter 2024) January 15, 2025
Our post provides an updated snapshot of housing affordability in California. Over the last few years, we have seen a rapid increase in California housing costs, led by the dramatic increase in the costs of purchasing a home. Monthly costs for a newly purchased home are about $2,600 higher than they were just a few years ago, driven both by increases in home prices between 2020 and 2022 and an increase in mortgage rates since 2022.
The rapid increase in mortgage rates in 2022 has also left most existing homeowners "locked-in" to mortgages with rates significantly lower than currently available. More than 80 percent of California homeowners have mortgage rates under 5 percent, compared to current rates of about 7 percent. These homeowners face a significant additional financial cost to moving, further limiting the number of homes available for sale.
Inflation Tracker December 16, 2024
November data shows inflation in the US and California is trending upwards but remains lower than post-pandemic highs. Relative to the US as a whole, housing prices have grown less in California since 2020 but utility prices have grown more.
Data Revisions Shows Monthly Survey Again Overstating Job Growth December 16, 2024
Since mid-2022, the state's monthly jobs survey has tended to overestimate actual employment growth. The data revision from the first quarter of 2024 gave some hope that this pattern was correcting, but the newest incoming data show the monthly survey again overstating employment. Specifically, the most recent match to administrative records shows the survey overestimated job creation from March through June this year by roughly 150,000 jobs (preliminary survey gain of 68,000 relative to matched net loss of 78,000 jobs).
Cannabis Tax Revenue Update (2024 Q3) December 3, 2024
Our new forecast for 2024-25 cannabis tax revenue is $653 million, somewhat lower than the May Revision forecast of $695 million.
Update: Tech Company Equity Pay Driving Withholding in 2024 November 20, 2024
California's technology companies, including giants like Apple, Google, Nvidia, and Meta, are some of the most valuable companies in the world and support thousands of high-paying jobs in the state. Many employees at these companies receive equity pay, such as stock options and restricted stock units, in addition to their base salary. As we first pointed out a year ago, state income tax withholding on equity pay has grown notably in recent years due to the AI boom in asset prices for these companies. With updated data from early 2024, we now believe withholding from these sources reached about 10 percent of all income tax withholding during the first half of 2024.
U.S. Retail Sales Update: October 2024 November 15, 2024
U.S. retail sales have grown 1.1 percent over the last 3 months and 2.8 percent over the last 12 months. Retail sales growth has outpaced inflation substantially over the last 3 months, but only slightly over the last 12 months.
U.S. Retail Sales Update: September 2024 October 17, 2024
U.S. retail sales have grown 1.7 percent over the last 3 months and also 1.7 percent over the last 12 months. Retail sales growth has outpaced inflation over the last 3 months, but not over the last 12 months.