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 49th 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 1st 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.