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Dramatic changes in Californians' consumer spending have sharply eroded the sales tax as a source of state revenue, a new report by the Legislature's budget analyst concludes.

Spending on taxable goods such as cars and clothes hit a high point of 53 percent of personal income in 1979 and has been declining ever since to 33 percent currently, Legislative Analyst Mac Taylor's report found.

The relative decline of taxable sales has been only partially offset by increases in the sales tax rate, so it has been supplanted as the state's largest revenue source by the personal income tax, which now generates nearly twice as much revenue.

In fact, Taylor's report says, had consumer spending not been changed, the sales tax would generate as much revenue as it does today with a state rate of 5.2 percent, rather than its current 8.4 percent.

The report attributes the relative decline in taxable sales to the aging of the state's population and sharply increasing costs of untaxed services and other forms of spending, such as housing. It says the pattern is likely to continue, making the state even more dependent on income taxes.

The tax shift outlined in the report has been noted before. Several years ago, then-Gov. Arnold Schwarzenegger and the Legislature appointed a commission to recommend tax changes because the shift, it was believed, led to more volatility in the state's revenues. The commission's report, however, was ignored because its controversial provisions included broadening the income tax and applying the sales tax, with a name change, to services.

Since then, voters have increased both overall sales tax rates and income tax rates on high-income Californians.


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