In this post, we provide an interim update to our formalrevenue outlookfor 2022-23, which was published in November. Using the methods discussedhere, this interim update adjusts our November outlook to account for the most recent revenue and economic data and then compares this update to 2023-24 Governor's Budget assumptions.
At the time of our November outlook, we cautioned that economic indicators were suggesting a slowdown could be on the horizon. More recent economic data have continued to point in this direction. (These data do not yet reflect any downstream consequences of very recent developments in the banking sector.)Consistent with this, our updated estimates suggest collections from the state’s “big three” taxes—personal income, sales, and corporation taxes—are likelyto fall below the Governor's Budget assumption of $200billion. That being said, there is a quarter left in the fiscal year and the trajectory of the economy remainsvery cloudy. As a result, there remains significant uncertainty about how much the state ultimately will collect. Further, we caution that the implications of unanticipated changes in revenues for the state's budget are not straightforward.
Consistent with recent deterioration in tax collections, our forecast anticipates big three revenues will decline 11 percent in 2022-23. The bulk of this decline is attributable to the personal income tax.
Consistent with this, our updated estimates suggest collections from the state's “big three” taxes—personal income, sales, and corporation taxes—are likely to fall below the Governor's Budget assumption of $200 billion.
The FY 2023-24 proposed budget estimated April 2023 PIT collections to total $11.29 billion. PIT receipts expected in April represent 5.44 percent of total General Fund revenues of $207.34 billion anticipated for the entire 2022-23 fiscal year.
California revenues for the 2022-23 fiscal year are $4.7 billion below forecast through March. The updated numbers from the Department of Finance's monthly cash report arrive just a few weeks before the governor is due to release the "May revise" to his budget proposal.
The personal income tax is the state's largest revenue source and is expected to comprise 65.9 percent of all General Fund revenues in 2022-23. The personal income tax is estimated to generate $128.2 billion in 2020-21, $120.9 billion in 2021-22, and $130.3 billion in 2022-23.
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![Updated 2022-23 "Big Three" Revenue Outlook [EconTax Blog] (2024)](data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAAEAAAABCAQAAAC1HAwCAAAAC0lEQVR42mP8/h8AAvMB+NzmkbcAAAAASUVORK5CYII=)