California's October tax receipts far below projections
Likely due at least in part to new, last minute deadline delay announced by IRS
October Collections Trending Far Below Earlier Projections. Through Friday, October 20, the Franchise Tax Board (FTB) has collected $17.3 billion of personal income tax (PIT) and corporation tax (CT) receipts this month. This is far below the $44.9 billion of FTB collections projected for the entire month of October 2023. Given the previous October 16 tax deadline announced in the spring, I expect FTB would have collected over $30 billion by now if receipts were on track to hit that $44.9 billion projection.
As of Friday, October 20, daily collections at FTB dropped to only about $180 million. This suggests that few, if any, billion-dollar collection days remain this month at FTB. (These tallies omit other state receipts, such as PIT withholding and sales taxes, that have not been affected much by IRS’ deadline delays.)
This Week’s IRS Deadline Extension May Be the Issue. The October projection was developed in May. As such, it could not account for the unexpected added one-month delay for most Californians’ final 2022 and some 2023 PIT and CT payments announced by the IRS on the morning of Monday, October 16—just hours before these payments were due.
This week’s FTB collection trend suggests that very high-income Californians and some businesses:
acted remarkably fast on Monday to delay substantial amounts of planned tax payments to November and/or
the estimated collections for this month in the 2023-24 state budget were overstated to some extent.
IRS Delay May Limit Information for January Revenue Forecast. The coming days and weeks will reveal more. If significant segments of high-income Californians delay submitting 2022 returns or 2022 and 2023 payments to November, this likely will significantly limit the information available for the next round of LAO and Department of Finance state revenue forecasts. Accordingly, the Governor’s January 10 budget proposal may have to be premised on significantly limited revenue data.
State Cash on Hand Remains Strong. Despite the lack of tax payments from high-income Californians and some businesses since January, California’s state treasury maintains a remarkably strong cash position: about $90 billion as of September 30. As such, no additional corrective budget actions are required immediately due to the new IRS delay. The IRS delay, however, is reducing interest earnings that otherwise would be earned by state treasury holdings, and this may affect next year’s projected state deficit by a small amount.
California Effect on 2023 Federal Deficit. In a related note, the U.S. Treasury noted today in a report that the federal government’s deficit grew from $1.4 trillion in federal fiscal year (FFY) 2022 to an official figure of $1.7 trillion in FFY 2023, driven largely by what The New York Times termed an unexpected decline in tax receipts. As both the Times and CBO have suggested, however, a portion of this dip relates to the IRS’ decisions to allow high-income Californians and some businesses to not make federal income tax payments since January. This California effect also hastened the near breach of the federal debt ceiling in early June.