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General Fund Revenue
Personal Income Tax: $55.598 Billion
The personal income tax is the state's largest single revenue source, representing 54.9 percent of all General Fund revenues and transfers in 2007-08. Income tax revenues are expected to increase by 4.3 percent for 2006-07 and 6.8 percent for 2007-08. The 2007-08 estimate includes $165 million in additional revenues from the proposed repeal of the teacher tax credit and $69 million from additional efforts to reduce the "tax gap." Tax professionals define the tax gap as the difference between what taxpayers should pay and what is actually paid.
Modeled closely on the federal income tax law, California's personal income tax is imposed on net taxable income: that is, gross income less exclusions and deductions. The tax is steeply progressive, with rates ranging from 1 percent to 9.3 percent. Figure REV-03, which shows the percent of total returns and tax paid by adjusted gross income class, illustrates the progressivity. In 2004, the top 13 percent of state taxpayers, those with adjusted gross incomes over $100,000, paid 80 percent of the personal income tax. Changes in the income of a relatively small group of taxpayers can have a significant impact on state revenues.
Income ranges for all tax rates are adjusted annually by the change in the California Consumer Price Index. This prevents taxpayers from being pushed into higher tax brackets by inflation without a real increase in income. Tax rates apply to total taxable income, after which taxpayers can reduce their gross tax liability by claiming different credits.
An alternative minimum tax, imposed at a rate of 7 percent, ensures that income taxpayers do not make excessive use of deductions and exemptions to avoid paying a minimum level of tax.
Capital gains and stock options have a substantial impact on state revenues. Capital gains reported by taxpayers increased 60 percent in 2004 and 40 percent in 2005; they are expected to increase 10 percent in 2006 and 5 percent in 2007. Figure REV-04 shows the portion of General Fund revenues from capital gains and stock options.
Some personal income tax revenue is deposited into a special fund. Proposition 63, passed in November 2004, imposes a surtax of 1 percent on taxable income over $1 million in addition to the 9.3-percent rate. Revenue from the surtax is transferred to the Mental Health Services Fund for county mental heath services. The Proposition requires that 1.76 percent of all income tax revenues received each month be transferred to this fund. Once all tax returns are submitted and verified, the Franchise Tax Board determines how much revenue was generated by this surtax; if additional funds are due to the Mental Health Services Fund, a transfer is made from the General Fund. It is estimated that $448 million will be transferred to the Mental Health Services Fund on July 1, 2007. The actual amount of the transfer will not be known until Spring 2007, when final 2005 tax return data are available. (See the Health and Human Services section for information on expenditures from the Mental Health Services Fund.)
The General Fund and the Mental Health Services Fund shares of personal income tax revenues for 2005-06 through 2007-08 are shown in Figure REV-05.
The Franchise Tax Board, which administers the personal income tax, prepares an annual report providing information on income subject to tax, tax rates, tax collections, and taxpayer characteristics. Its website, www.ftb.ca.gov, includes this annual report. Information on personal income tax exclusions, deductions, and credits is also available in the Department of Finance's Tax Expenditure Report, published annually on the Internet at www.dof.ca.gov in "Reports and Periodicals.")
CHAPTER HIGHLIGHTS for
Revenue Estimates Back to Top
PRINTABLE BUDGET DOCUMENTS Back to Top
Budget Summary - Revenue Estimates (pdf * - 231K)
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Provides this entire Revenue Estimates Chapter in pdf format.
SCHEDULE 2 - Summary of State Tax Collections (pdf * - 9K) -
State Tax Collections per capita and per $100 of personal income.
SCHEDULE 3 - Comparative Yield of State Taxes (pdf * - 12K) -
Revenues for Major State Taxes from 1970-71 through 2007-08.
SCHEDULE 8 - Comparative Statement of Revenues (pdf * - 20K) -
Detail of General and special fund revenues by source for the past, current, and budget years within the following categories: (1) major taxes and licenses, (2) minor revenues, and (3) transfers and loans.
ADDITIONAL INFORMATION Back to Top
Board of Equalization
This site provides information about taxes levied on property, sales, fuel, cigarettes, and alcoholic beverages. The Board prepares an annual report which can be located using that site's search function.
Franchise Tax Board
This site provides information about taxes levied on personal income and on corporations. The Board prepares an annual report which can be located using that site's search function.
Tax Expenditure Report
The Department of Finance annually updates this report on major tax exemptions, exclusions, and credits. This report is posted on Finance's website within the "Financial and Economic Data" page.
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