General Fund Revenue
Personal Income Tax

The personal income tax is the state's largest single revenue source, representing 54.9 percent of all General Fund revenues and transfers in 2008-09. Income tax revenues are expected to increase by 1.4 percent for 2007-08 and 7.2 percent for 2008-09. The estimate includes $28 million in additional revenues from redirecting Franchise Tax Board rent savings to revenue generating purposes in both 2007-08 and 2008-09. Budget year revenues also include a one-time acceleration of $1.2 billion from bringing the tax revenue accruals into conformity with Generally Accepted Accounting Principles, $52 million in additional revenues from Franchise Tax Board revenue enhancing measures and $22 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 2005, the top 14 percent of state taxpayers, those with adjusted gross incomes over $100,000, paid 83 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 47 percent in 2005 and 4 percent in 2006; they are expected to be flat in 2007 and then decrease 3 percent in 2008. 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 surcharge of 1 percent on taxable income over $1 million in addition to the 9.3-percent rate. Revenue from the surcharge is transferred to the Mental Health Services Fund for county mental health 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 surcharge; if additional funds are due to the Mental Health Services Fund, a transfer is made from the General Fund. On July 1, 2007, $424 million for 2005-06 was transferred to the Mental Health Services Fund. It is estimated that $436 million for 2006-07 will be transferred to the Mental Health Services Fund on July 1, 2008. The actual amount of the transfer will not be known until Spring 2008, when final 2006 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 2006-07 through 2008-09 are shown in Figure REV-05.

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CHAPTER HIGHLIGHTS for Revenue Estimates Back to Top

 General Fund Revenue
 image of black pointing arrowPersonal Income Tax
  Sales and Use Tax
  Corporation Tax
  Insurance Tax
  Alcoholic Beverage Taxes
  Cigarette Tax
  Property Taxes
  Estate/Inheritance/Gift Taxes
  Other Revenues
 Special Fund Revenue

PRINTABLE BUDGET DOCUMENTS Back to Top
Budget Summary - Revenue Estimates (pdf * - 540K) -
Provides this entire Revenue Estimates Chapter in pdf format.


SCHEDULE 2 - Summary of State Tax Collections (pdf * - 113K) -
State Tax Collections per capita and per $100 of personal income.


SCHEDULE 3 - Comparative Yield of State Taxes (pdf * - 116K) -
Revenues for Major State Taxes from 1970-71 through 2008-09.


SCHEDULE 8 - Comparative Statement of Revenues (pdf * - 18K) -
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.