"Forecasting Revenue Receipts in the States: Current Challenges in California".

• Position: Brief Article

Williams, Brad; Ingenito, Robert; and Vasche, Jon David

National Tax Journal, September 1999, pp. 361-371.

This article examines the recent performance of California's major revenue sources--the personal income tax (PIT), the sales and use tax, and the bank and corporation tax--and discusses key challenges facing revenue forecasting analysts. Since the early 1990s, California has experienced significant growth in its general fund revenues, with the PIT accounting for a majority of the increase. PIT liabilities between 1995 and 1998 increased at double the growth rate of personal income over the same period. This is explained by a substantial outward shift in income distribution. Because those with higher incomes pay a larger percentage in income tax, income distribution is a key factor in determining revenue levels generated by the PIT. The result of this shift in the income distribution is that revenue is becoming more dependent on elements such as stock market performance, bonuses, and stock options. A key challenge for forecasters in...