CHA News Article

Report Examines Volatility of California’s Personal Income Tax Structure

The Legislative Analyst’s Office has released a report discussing the volatility of California’s personal income tax. The personal income tax is state government’s most important revenue source, contributing over two-thirds of the state General Fund, which supports schools, universities, major health and social services programs, prisons and other state‑funded programs. 

The report found that about 40 percent of personal income tax volatility is due to choices about which types of income to tax. About another 40 percent is due to the rate structure, which taxes higher incomes at higher rates. This amplifies the volatility of taxes paid by high‑income taxpayers. Finally, about 20 percent of personal income tax volatility is due to deductions and credits, which mostly serve to reduce the tax liabilities of low‑income and middle‑income taxpayers.

The volatility of higher income taxes, by extension, will affect the revenues collected for Proposition 55. Proposition 55 extends by 12 years (through 2030) the temporary personal income tax increases enacted in 2012 on earnings over $250,000, with revenues targeted for K–12 schools, California community colleges and health care for low-income people.