Dan Walters

By Dan Walters
May 23, 2015

  • Sales tax used to be state’s top revenue source
  • Income taxes now dominate revenue flow
  • Should sales taxes be extended to services?

During the first year of Jerry Brown’s first governorship, 40 years ago, the state collected $9 billion in general fund revenues and the sales tax was the biggest source at $3.7 billion.

This year, the state is collecting more than $110 billion in general fund revenues and two-thirds of it comes from the personal income tax. Sales taxes are a distant second, scarcely a fifth of the total.

This dramatic shift in state finances from a reliance on sales taxes to utter dependence on income taxes, particularly those on high-income Californians, didn’t happen overnight. But it did happen, and the gap between the state’s two largest revenue sources continues to widen.

Perhaps the most important factor is a fundamental change in Californians’ personal financial behavior – spending relatively less on taxable goods such as cars and clothes and more on their homes, investments and untaxed services such as health care.

During the 1970s, taxable retail sales equaled well over half of personal income, but today are less than a third.

Concurrently, the progressive structure of the income tax magnified its impact. Personal income, about $7,000 per Californian in 1975, has increased seven-plus times to more than $50,000 today. But income tax revenue, about $75 billion, is 25 times what it was in 1975.

To read entire column, click here.