California Fiscal Update

August sales tax collections were down 20% compared to last year and total revenues are down 5.5%. Even though income taxes rose 11.6%, corporate taxes declined over 70%. Meanwhile California’s spending is almost $3 billion more than was budgeted. Hmmm, not the best way to deal with an out of control budget.

The graph above is courtesy of well known financial blogger Mish Shedlock.

The 20% decline in sales tax revenues for August is perhaps the most worrisome signal that California may be heading into recession as people have clearly cut back on their spending. California, often viewed as a bellwether for the trajectory of the rest of the country, may be leading the way into a broader slow down. A 20% decline in sales taxes revenues year over year is substantial and I suggest you keep this data point on your radar screen during the coming months.

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