CAL-TAX: TAXES ARE HEAVY BURDEN IN CALIFORNIA

The Golden State ranks substantially higher in aggregate tax burden than western states with which we compete for jobs and economic investments. Raising taxes is not the solution to the state’s budget deficit.

California’s Rank with Western Competing States (1999-2000 Data)
State	Tax Burden Per $1,000 Personal Income	Tax Burden Rank
California	$120.69	8
Texas	96.83	46
Nevada	105.27	40
Oregon	105.65	38
Washington	107.47	33
Arizona	110.88	24

Raising taxes in California, where the tax burden is already much heavier than most states, is a tried-and-failed response to a California spending crisis. What California needs is a huge dose of improved management of the $130 billion in state and local taxes Californians pay each year.

This extraordinary level of taxation in California can provide more than enough in tax revenue to fund police and fire services, education for our children, and public works projects and health and welfare services for Californian’s poor.

California’s tax burden compared to other states is so high that it is a factor in making California noncompetitive, making it harder to attract employers and jobs to crank up the state’s sputtering economic engine.

State Tax Burden For High Income States (1999-2000)
State	Tax Burden Per $1,000 Personal Income	Tax Burden Rank
New York	$141.04	1
Hawaii	125.92	6
California	120.69	8
Connecticut	119.69	11
Delaware	115.11	16
New Jersey	113.70	19
Massachusetts	110.88	23
Maryland	109.36	29
Illinois	107.76	32
Nevada	105.27	40
Colorado	103.10	42
Virginia	102.88	43
New Hampshire	88.00	50

According to the latest data (1999-2000) from the U.S. Department of Commerce’s Bureau of the Census, California is eighth highest among the states when tax burden is compared on the basis of personal income and seventh-highest per capita. It is critical to note that none of the western states with which California competes is even close to eighth. States with a higher burden than California are thousands of miles away.

In May, the Tax Foundation, a Washington, D.C.-based think tank that has been analyzing and reporting on tax issues for 65 years, released tax burden rankings for the current year that lists California sixth-highest among the states in state and local taxes per capita. California ranks eighth-highest as a percentage of income. Using data from federal and state sources, as well as the National Conference of State Legislatures, the Tax Foundation’s figures include state and local taxes scheduled to go up or down based on states’ statutes enacted through 2002. (See tables below.)

State and Local Tax Burden Per Capita, Calendar Year 2003
Rank	State	Tax Burden
1.	Connecticut	$4,858
2.	New York	$4,534
3.	Massachusetts	$4,105
4.	New Jersey	$3,993
5.	Minnesota	$3,888
6.	California	$3,670
7.	Rhode Island	$3,577
8.	Maryland	$3,572
9.	Maine	$3,519
10.	Washington	$3,345
Other Western States
14.	Colorado	$3,219
28.	Nevada	$2,742
30.	Utah	$2,699
31.	Oregon	$2,682
32.	Arizona	$2,677
38.	Texas	$2,492
41.	New Mexico	$2,428
	USA	$3,150
Source: Tax Foundation

California’s tax burden is 24 percent above the national average, according to a Milken Institute study released last year by the California Manufacturers and Technology Association. California’s corporate income tax burden is nearly 40 percent above the national average, with only Massachusetts and New Jersey higher, according to the Milken report.

And these figures do not consider billions of dollars in local fees that have been imposed as surrogates for reduced property tax revenue (although property tax revenues have enjoyed healthy annual growth due to new construction and change-of-ownership reappraisals).

The figures also do not tell the whole story. Consider a recent report from the Tax Foundation showing that California ranks 49^th among the 50 states using a State Business Tax Climate Index. Not only does this consider amounts of taxes collected, but it gauges what the foundation sees as economic damage caused by the ways each state extracts tax revenue. Only Mississippi ranked worse than California.

Common threads of the lowest performing states are complex tax codes imposing above-average rates on levels of income, above-average sales tax rates exempting few business input items; high overall state tax burdens and revenues that have grown faster than personal income. Another factor common to the worst states is a tax code that imposes considerable compliance costs on business. Here is a link to The State Business Tax Climate Index, which was issued on May 22: http://www.taxfoundation.org/businesstaxclimate.html.

State and Local Tax Burden as Percent of Personal Income, Calendar Year 2003
Rank	State	Tax Burden
1.	Maine	12.2%
2.	New York	12.0%
3.	Minnesota	11.0%
4.	Rhode Island	11.0%
5.	Connecticut	10.9%
6.	Hawaii	10.7%
7.	Wisconsin	10.7%
8.	California	10.6%
9.	Utah	10.6%
10.	Ohio	10.3%
Other Western States
14.	Arizona	9.9%
18.	Washington	9.8%
21.	New Mexico	9.7%
32.	Colorado	9.3%
39.	Oregon	9.0%
41.	Nevada	8.9%
46.	Texas	8.3%
	USA	9.7%
Source: Tax Foundation

There are scores of proposals in Sacramento that would make it even more costly to operate a business in this state. Tax and fee threats amount to tens of billions of dollars (see Cal-Tax Online www.caltax.org for details). Meanwhile, the business community, through the Coalition for California Jobs, has released a list of 51 bills that have been labeled “job killers” and has launched a Jobs 1^st Campaign. These measures include efforts to increase property taxes on business property (for more information on these measures, see www.cajobsfirst.org).

Raising taxes during a budget crisis is a tried-and-failed concept. History shows it does more harm than good. In the early 1990s, Sacramento raised the income tax and applied the sales tax to candy and snack food, and bunker fuel (which ships took on in a California port and used after leaving California waters). These tax increases were embarrassingly ineffective. The revenue did not materialize or the ill-advised tax was rescinded because of its damaging effects.

When early 1990s tax increases were triggered off or were repealed, California’s economy surged. During this six-year period, state general fund revenues grew 80 percent, not including billions in tax relief. It could not be clearer: Growth in the California economy is a revenue increase opportunity that vastly exceeds any tax increase under consideration.

California can’t tax its way out of this budget mess, nor should it. As history demonstrates, tax increases will only retard recovery that will produce revenue growth for public programs.

The drum beat for higher taxes in Sacramento comes from the only growth industry in California – the public spending lobby. This is the small army of lobbyists paid to advocate for more government spending and more and more government bureaucracy. Sadly, this lobbying effort has been effective, as shown by a dramatic increase in the number of public employees in California. Meanwhile, highly desirable manufacturing jobs moved away.

Elected officials proposing to raise taxes would be underwriting incredible amounts of fraud and waste devouring billions of tax dollars – at least $10 billion over the past four years – according to various newspaper reports, mostly based on official government audits. Medi-Cal fraud alone is costing taxpayers about $2.5 billion a year, according to investigators quoted in newspaper reports. The media in California is ringing the alarm about fraud and reckless spending habits. Many of these reports have been listed at Cal-Tax Online (http://caltax.org/Fraud.htm).

Instead of forcing consumers and business in California to underwrite out-of-control spending, the Legislature needs to exercise greater care and do a better job managing spending to insure that crucial priorities are met.

Tax Burden: All States (1999-2000)
Tax Burden Per $1,000 Personal Income			Tax Burden Per Capita
1	New York	$141.04	1	Connecticut	$4,595.15
2	Maine	139.10	2	New York	4,577.79
3	Alaska	131.57	3	New Jersey	3,902.77
4	Wisconsin	128.93	4	Massachusetts	3,786.75
5	New Mexico	127.09	5	Minnesota	3,694.43
6	Hawaii	125.92	6	Alaska	3,687.08
7	Minnesota	123.72	7	California	3,544.74
8	California	120.69	8	Wisconsin	3,457.60
9	Vermont	120.66	9	Maryland	3,453.53
10	Utah	120.05	10	Hawaii	3,384.17
11	Connecticut	119.69	11	Maine	3,342.86
12	North Dakota	119.10	12	Delaware	3,340.09
13	Rhode Island	118.70	13	Rhode Island	3,256.06
14	Wyoming	117.05	14	Illinois	3,241.49
15	West Virginia	116.36	15	Washington	3,178.46
16	Delaware	115.11	16	Michigan	3,167.05
17	Idaho	113.87	17	Vermont	3,079.71
18	Michigan	113.81	18	Colorado	3,072.82
19	New Jersey	113.70	19	Wyoming	3,045.87
20	Ohio	112.44	20	Ohio	3,015.83
21	Kentucky	111.67	21	Pennsylvania	2,978.67
22	Iowa	110.96	22	Virginia	2,978.24
23	Massachusetts	110.88	23	Nevada	2,915.33
24	Arizona	110.88	24	Nebraska	2,906.47
25	Mississippi	110.67	25	Georgia	2,840.65
26	Montana	110.00	26	Kansas	2,833.46
27	Louisiana	109.92	27	Iowa	2,765.05
28	Nebraska	109.84	28	North Dakota	2,754.07
29	Maryland	109.36	29	Oregon	2,751.18
30	Kansas	108.87	30	Indiana	2,691.35
31	Georgia	108.77	31	North Carolina	2,663.69
32	Illinois	107.76	32	New Hampshire	2,652.41
33	Washington	107.47	33	New Mexico	2,639.13
34	Pennsylvania	106.82	34	Utah	2,630.15
35	Oklahoma	106.51	35	Florida	2,623.99
36	Arkansas	106.44	36	Arizona	2,598.64
37	North Carolina	105.75	37	Missouri	2,558.33
38	Oregon	105.65	38	Idaho	2,545.78
39	Indiana	105.63	39	Kentucky	2,516.68
40	Nevada	105.27	40	Texas	2,504.63
41	South Carolina	104.58	41	Louisiana	2,436.21
42	Colorado	103.10	42	West Virginia	2,412.78
43	Virginia	102.88	43	Oklahoma	2,391.02
44	Missouri	99.50	44	South Carolina	2,378.59
45	Florida	98.74	45	Montana	2,363.46
46	Texas	96.83	46	South Dakota	2,298.85
47	South Dakota	94.49	47	Arkansas	2,230.20
48	Alabama	93.65	48	Mississippi	2,214.20
49	Tennessee	88.09	49	Tennessee	2,185.13
50	New Hampshire	88.00	50	Alabama	2,117.18

Comparison data from 1999-2000 comes from the US Census Bureau's annual "State and Local Government Finances" publication and is the most current data available.