July California Tax Revenues Plunge More Than 10% Below Expectations

Tyler Durden's picture

Even as the Fed continues to pretend that keeping interest rates at zero for what is now becoming apparent will be an infinite amount of time is an appropriate substitute for the absence for the elimination of actual cash flows, we once again get a reminder that life in the real economy, there were people can not just print their way out of trouble, practical issues such as reality still matter. One such example comes to us by way of California which just announced that state tax revenue plunged in July, falling more than 10% below expectations, and as the LA Times blog says, "making it more likely that deeper cuts to public schools built into the state budget in case of a stalled economic recovery will occur." It adds: "Gov. Jerry Brown and state lawmakers patched up the final $4 billion of California’s budget shortfall this year by hoping for a windfall economic recovery. Those hopes are now fading fast. Tax collections in July were $538.8 million below budget forecasts, according to state Controller John Chiang." And just like the proposed Deficit Reduction Plan will crash and burn courtesy of the completely unknown trillions in yet undisclosed savings, so California is now waking up to a bad hangover after realizing that the deus ex machina in unidentified billions of "revenues" forgot to make an appearance.

Income taxes were up slightly, but sales and corporate collections lagged by a combined nearly $210 million. But the biggest drag was from the unidentified $4 billion that budget writers had banked on.


“Every drop in revenues puts us closer to the drastic trigger cuts that could be imposed next year," Chiang said in a statement. Those automatic cuts include a reduction in schools spending that could shrink the academic year by as many as seven days in some districts.

And unless the Fed can continue to baffle them with bullshit, by declaring that the recession is here, but it is really good for your 401(k), California's troubles are only set to escalate.

Worse, the sagging tax collections were reported before the recent stock market turmoil. The Dow Jones industrial average plunged by more than 600 points on Monday. California relies very heavily on capital gains taxes from the stock taxes.

We are confident California will survive. After all it merely need to tell its taxpayers that courtesy of ZIRP to perpetuity, they all just got much wealthier, and if not, then they should bring their grievances to the Fed Chairman. In the meantime, tax hikes, and spending cuts for the state, which has to have a balanced budget, at least on paper, are imminent.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Kali's picture

But, but, but the markets are recovering!  Free unicorn rides, skittles and cotton candy for all!

dlmaniac's picture

Payback bitchez!!

This is what happens when you drve business owner such as Amazon out of Soviet Unions of California.

linrom's picture

They have a lot great businesses that Cali residents support. Let's see: GOOGLE, AMAZON,EBAY, FACEBOOK. Great! None of these leeches pay any corporate tax, no sales tax, their customers pay no sales tax. Yet, the stock option wealth transfer  whores demand and require great deal of public services for FREE.

AssFire's picture

They give you high paying jobs and the US has one of the highest corporate tax rates. You should be ashamed...No better yet let them all move out- that is what you deserve you friggin parasite.

Bobbyrib's picture

Perhaps we should measure the corporate tax rate against what these companies actually pay...


Oh and how are those distribution center jobs for Amazon going in Texas. Friggin' parasites...

sun tzu's picture

How much in taxes do their employees pay and how much do they contribute to the local economy? They're taxed at 10% in California plus property and sales taxes and buying alot of shit since they're all making $250K 

The fact that they pay little corporate income taxes is not their fault. Congress wrote the tax code with those loopholes. Lower the tax rates and get rid of the loopholes so everyone pays the same simple rate. Make them repatriate their foreign earnings at a lower rate so they can bring their money back. Paying some taxes is better than no taxes plus they will pay it out in dividends and the stockholders will end up paying taxes on that income.


Bobbyrib's picture

Most of the jobs created in this country are created by small businesses/corporations. Again 10% corporate tax rate doesn't really matter unless they are paying anywhere near 10%. Everyone is making $250K? I should move to California and get a job there.

Congress wrote the tax code with these loop holes, because lobbyists told them to write them in. You want everyone to pay the same simple rate despite how many resources they require from the state (traffic lights, law enforcement, etc)? That's very interesting. Sounds like you want people or other corporations to pay for larger corporations that require more resources.

So you know for fact that tech companies which require a large cash balance sheet will pay out dividends which will make investors pay taxes on that money? Have there been any studies that proves that the repatriation of assets goes directly toward creating jobs (there were actually reports suggesting the opposite)? Let the corporations keep their money overseas, it will only wind up in their executives' and our law makers' (which will make policies worse for the average person) pockets.

Chuck Walla's picture

You all really think corporations pay taxes?  What money, what income does a corp have until it sells something?  Whats in the price of the goods sold? Raw materials, machines, buildings, desks, HVAC, computers, transport, warehouses, salaries, profit and tax? Now, who pays for all that?  Could it be the customer? And raising taxes merely pushes up prices to consumers because, no matter what you believe, the buyer pays for it all, every penny.

Bobbyrib's picture

The system worked before and can continue to work now. Businesses have almost always passed operating costs to their customers whenever they could.

snowball777's picture

What does Goldman produce again? I missed the trucks delivering their inputs and outputs somehow...maybe they work like Willy Wonka?

You have a mysterious faith in the ability of companies to push their margins on to customers without going out of business due to a little thing called flexiblity of demand. Even Exxon knows that's bullshit after a point.

Try again, this time with logic fully engaged.


sun tzu's picture

I'm talking about people at Google and other tech companies in Sillycon Valley. Like I said, lower the tax rate and get rid of the loopholes so everyone pays the same rate. It's better than what we have now where those who can afford an army of lawyers and CPAs end up gaming the system while small and medium businesses end up getting hosed

snowball777's picture

Unless they bought a property from a company who locked in their assessment decades ago and are avoiding those taxes via Prop 13; yeah, you thought it was about not tossing the Grannies thieving your SS dollars out onto the street, suckahs.


Eagle Keeper's picture

Shittin skittles and spittin chicklets.!

gangland's picture

Vee vant zat money, Lebowski. You think veer kidding und making mit de funny stuff?

jmc8888's picture

Woo hoo.  Instead of pushing for Glass-Steagall, they went for going down some of the terrorizing avenues of cut, tax, print...and what do you know....they are even WORSE off. (oh and obfuscate, hide, bullshit with optimism, and iou's)

Go figure!


Iriestx's picture

With the federal government blessed with the ability to print a limitless supply of dollars with little to no repercussions, why does anybody have to pay taxes?

drink or die's picture

When the president gets on TV saying that SS checks may not go out, why does anyone pay SS?

Long-John-Silver's picture

That's the reason they don't give you a choice to pay or not. They take it from your pay before you get to see or hold it.

DeadFred's picture

They have guns and have shown they are more willing to use them than we are.

Hephasteus's picture

Because the fed is involved in a massive 401k cheat. The states are draining them to make up budget shortfalls. The fed is printing the money from nothing to do it. It'll end soon.

Kali's picture

Two people, in the last week, have told me they could not get their "money" out of the 401k or retirement pension.  One was a lady I was talking to at the coin shop, they wouldn't loan or redeem her money, said her company had been bought by GS earlier this year.  One of my clients this week told me her brother, an Oregon state employee, disabled/retired for awhile, wanted to cash out.  Was told he couldn't cuz "the state didn't have the money".   They've already taken that funny money. 

Echoes of South Park, "and it gone!"

Hephasteus's picture

It's funny. The first crash is always about the money being gone. The 2nd crash is about the possibility of it ever coming back being gone.
Double dip. Delayed reality.

ElvisDog's picture

One of the good things about changing jobs is the ability to take control of your 401K. My old job did theirs through American Funds, which gave us half a dozen lame-ass mutual funds and a money market fund that paid negative interest. Now that I have control of my 401K I can do whatever I want with it - gold ETF, currencies, whatever.

nmewn's picture

Good advice Elvis.

"One of the good things about changing jobs is the ability to take control of your 401K."

Word up.

Everyone who is still working should have their own personal IRA off to the side to roll their 401k into.

When they get sick of the workload (doing three peoples jobs because of other layoffs) or find something better or get canned themselves having an existing IRA to transfer your money into is one less headache.

Abitdodgie's picture

I cannot belive anyone on this site still pays taxes ?

Cathartes Aura's picture

many still vote!! and think voting will make a difference in the "future"!! and still have bank accounts, even at BofA!! every couple of months, there's the "let's do a run on the ATM!!!" - hardcore these posters, hardcore.

NotApplicable's picture

FWIW, I got a loan against mine just last week from Federated Retirement Solutions.

Montgomery Burns's picture

Your client is full of shit. Oregon PERS, which is the public retirement system here, has rules about when and how you can take your money out. Those rules haven't changed. One thing you can't do is change your mind about how you want to be paid out once you start collecting.

Man Bear Pig's picture

It's necessary for any "legal tender" to circulate over a long period. If there were no taxes, there would be room for alternative/local currencies. But since one can only pay taxes in dollars, the currency remains a necessary evil. (this is, of course, only one explanation. there are many others that all come together to create the big picture).

California should just make their IOUs "legal tender" to pay state taxes. Either accept a reduction in your tax liability, or wait until the cash is available. The people need options, not more legislation!

dolly madison's picture

"With the federal government blessed with the ability to print a limitless supply of dollars with little to no repercussions, why does anybody have to pay taxes?"


There are repercussions.  The federal government pays interest on the money it prints, and has a national debt on the money it prints.

Doyle Hargraves's picture

The federal gubmint doesn't print money, the federal reserve that is neither federal nor has any reserves prints money and LOANS it to the federal government which is where part of your INTEREST component comes in. The fed could print/make digital dollars to no end tomorrow if they so choose to do so, regardless of what the federal gubmint says.

Eagle Keeper's picture

Lets see the PPT fix that.

Dave Thomas's picture

When is S&P gonna downgrade California? It's either them or Nevada first.

DeadFred's picture

Cali already has A- to BBB+ debt I believe but was recently ungraded to stable form negative (by S&P)

Mactheknife's picture

Ahhhh yes, those pesky little "projections".

CrashisOptimistic's picture

This is beyond huge, people.

That budget deal they passed has AUTO CUT TRIGGERS that fire if the tax revenue they foolishly projected to appear . . . does not appear.


Now, the really tricky part of that is, in the law that passed stating these auto triggers must fire, they added several clauses shielding the . . . folks you would expect them to shield from any of it if such auto triggers fired.

Which means the $2B will cut much deeper on those they didn't shield.

California is going to have no public services next year.

LawsofPhysics's picture

Release the prisoners! Problem solved, Basteille day bitches.

ImnotPOTUS's picture


Correction Officers Union and the Prison Dentist pulling in over 1/4 mil a year in pensions would be out of work.
They all can't find work with Blackwater Security Details.

NotApplicable's picture

Sure they can!

Just as soon as Gov. Moonbeam sells them the prisons.

Iam_Silverman's picture

"They all can't find work with Blackwater Security Details."

Maybe they can outsource all prisons.  I'll bet the Zetas would do an excellent job for lower costs.  Heck, they might even have some folks already on the inside willing to start work immediately!

dolly madison's picture

Screwed by the neos again.  Even in a state with such a liberal government, they still keep the prisoners in jail at all costs and cut off the social services intstead.  That will keep the prison corporations making lots of money.

ImnotPOTUS's picture

It has more to do with the money multiplier effect in the Prison System is way more cost effective for funding politicians.

Correction Officers, Prison Dentists, Tiral Lawyers, Police Protective leagues, all kick back a chunk of the funds to the legislature to enusre more funds tomorrow.

Social Services sounds good in a sound bite, but they don't kick back campaign funds efficiently, and that is all that matters.

Neos have not made any great inroads with corporate prisons in Cali. Arni tried to offshore the prisoners to flyover states.

Calmyourself's picture

Shame on you !  You introduced reason into Dolly's narrative..  Now she will have to rethink everything..

Sheriff Douchenik from AZ's picture

Don't worry Dolly. Cali's finances are a mess but at least your boy Jerry got gay history as part of the cirriculum now. Once those kids graduate Cali's gonna have some of the best educated kids out there.

Doyle Hargraves's picture

Must not get out much Dolly, all I see here is EBT cards flashed to the max, section 8 overrunning my county from LA county next door because they have learned to game the system and get paid for living in LA county while not living there. If social services are being cut, I would love to see where. The prison industrial complex is also alive and well. Think of the destruction to the economy if drugs were legalized here (prisons are chock full of drug offenders easily as a majority) probation/parole officers, social workers, prison guards, prison vocational instructors, 'law enforcement', and prison medical staff would be reduced. The prison industrial complex is the kaleefornya economy. Thank gov moonbeam for giving the prison guard union a fat ass contract to keep them ever employed and the ability to cash like several years of leave at their highest rate on retirement. Social services would be ok in kaleefornya if it wasn't so easy to game and abuse/cheat the fuckin' system and have what we have now in this state: the people on the dole plus the state/county/city employees unions are easily in the majority. They can and do essentially vote themselves a raise every election, they are not gonna get my money much longer.

sun tzu's picture

They'll shut down all essential and safety services first and keep all the programs like midnight baketball, free tuition for illegal immigrants, welfare, $250K/yr pensions, $200K/yr paper pushers, $300K/yr fire & police captains, paper pushers, diversity managers, nature coordinators, etc

Things that go bump's picture

Yes, and then they will burn.  

Man Bear Pig's picture

From http://www.ebudget.ca.gov/pdf/Enacted/BudgetSummary/Introduction.pdf:

The Budget recognizes the potential risk to the state's fiscal condition if the higher revenues do not materialize. Under the budget package, if revenues are projected to fall short of expectations by more than $1 billion, an additional $600 million in cuts to higher education, health and human services, and public safety would be implemented beginning in January 2012. If revenues are projected to fall short by more than $2 billion, an additional $1.9 billion in education reductions would be implemented - shortening the school year by 7 days, eliminated the home-to-school transportation program, and reducing community college appointments.


Tier 1 (if revenues fall short of budget act estimate by more than $1 billion)

  • Unallocated reduction to the University of California  $100
  • Unallocated reduction to California State University $100
  • Eliminate State Grants for Local Libraries  $15.9
  • Additional Reduction to the Department of Developmental Services  $100
  • In Home Supportive Services (IHSS) - 20% reduction in service hours  $100
  • IHSS - Eliminate funding for local anti-fraud efforts  $10
  • Medi-Cal - Extend provider cuts and copayments to all managed care plans  $15
  • Unallocated reduction to the Department of Corrections and Rehabilitation (CDCR)  $20
  • Juvenile Justice -- Increase county charge for youthful offenders sent to CDCR $72.1
  • Eliminate vertical prosecution grants  $15
  • Proposition 98 - Community college $10/unit fee increase  $30
  • Child care - 4 percent accross-the-board reduction  $23

TIER 2 (if revenues fall short of budget act estimate by more than $2 billion)

  • Proposition 98 - Reduce 7 days of school  $1,540
  • Proposition 98 - Reduce community college appointments  $72
  • Proposition 98 - Eliminate home-to-school transportation  $248

Robbing the poor to give to the rich... it's *almost* like California wants a growing crime program... If you're in California, it may be time to start planning your departure. There are greener pastures elsewhere.