How did federal policy, inflation, and stimulus impacts alter California's tax revenue trajectory between 2023 and 2024?

1. Federal money is big — and changes at the federal level ripple into Sacramento

Federal transfers account for a large share of California’s budget and therefore federal policy shifts alter the state’s net fiscal position and spending needs; roughly one‑third of California’s state budget can come from federal dollars, and analysts warn cuts would amplify state pressure ^{[5] [6]}. Multiple outlets and state actors argue California is a “donor state” — sending more in federal taxes than it receives — and changes in federal spending rules or cuts could force California to replace or reshape programs, affecting both spending and the state’s perceived need to raise taxes or draw reserves ^{[7] [8] [9]}.

2. Inflation relief and state stimulus altered household cash flow — and complicated revenue timing

California’s one‑time “inflation relief” and Golden State/Middle Class stimulus programs put billions into residents’ hands in 2022–24 and the state delivered direct payments to millions ^{[10] [11]}. Those programs disbursed large sums (for example, $9 billion in middle‑class payments described by the governor’s office) and many payments were non‑taxable to recipients, which shifts consumer behavior and can temporarily change sales tax or income tax timing but not necessarily create durable revenue growth ^{[10] [12]}. Some stimulus debit cards remained unspent for months, meaning not all injected dollars translated immediately into taxable consumption ^[13].

3. Income‑tax volatility in 2023–24 reflects both one‑time timing factors and sector concentration

Personal income tax (PIT) collections were below the Governor’s forecast through March 2024 — $83.87 billion, $3.8 billion short of expectations — indicating weaker‑than‑expected timing or filings for that fiscal year ^[1]. Yet other forecasts and analyses (e.g., LAO) anticipated upside driven by unusually high income tax receipts tied to stock market gains and high compensation in the tech sector, especially from AI‑related firms; the Legislative Analyst’s Office warned these gains might be temporary and linked to concentrated capital gains and options income that can swing year to year ^[3]. CalMatters and the LAO flagged corporate and high‑income taxpayer behavior (including major tech firms like Nvidia paying sharply higher taxes in 2024 quarters) and state policy changes limiting certain deductions or credits that also boosted corporate tax receipts in 2024 ^{[4] [3]}.

4. Property taxes provided steady near‑term growth even as PIT moved unpredictably

Between Jan. 1, 2023 and Jan. 1, 2024, property tax revenues grew by $8.9 billion — an increase reported by the State Board of Equalization reflecting both local and state assessed property gains ^[2]. That increase is structurally different from volatile PIT and corporate revenues: property tax bases change more slowly and provided a clearer revenue uptick for schools and local governments in 2024 ^[2].

5. Budget scorekeeping and constitutional rules made revenue gains politically and practically constrained

Even when revenues exceeded expectations, constitutional limits on how surplus money can be used (for schools, reserves, or to pay down debt) mean that unexpected receipts often cannot be redirected freely to new programs; analysts and budget offices emphasize that recent windfalls largely must go to schools or reserves, reducing immediate policy flexibility ^[14]. The May Revision and revised revenue estimates showed adjustments and reversals, including withdrawals from budget reserves and one‑time adjustments that complicated the headline figures for 2024 ^[15].

6. Two competing narratives — temporary windfall vs. sustainable improvement

One narrative — embraced by the LAO and CalMatters — is that recent revenue gains are largely a concentrated, possibly transient, windfall tied to AI‑era stock and corporate profits that could reverse in a market correction ^{[3] [14]}. The competing view — voiced by state officials and some budget advocates — stresses that federal funding shifts and legal wins restoring federal dollars (and the state’s stimulus programs) materially shaped both revenues and spending adequacy, implying policy choices (e.g., limiting credits, new excise taxes) also produced structural revenue gains ^{[16] [17] [4]}.

Limitations: these conclusions are drawn from the supplied sources only; available sources do not mention some granular items you might expect (e.g., precise month‑by‑month PIT volatility breakdowns by filer type beyond the LAO and controller summaries) and different datasets or later reports could change the picture ^{[1] [3]}.