This article is from Cal-Tax Digest, published
by the California Taxpayers' Association.
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September 1999

Cal-Tax Commentary
Californians Carry Heavy Tax Burden
By Stephen Kroes

Even while California state and local governments are awash in budget surpluses, there are tax-hike agendas at work.

Evidence of the former: Latest figures show that, in California, governments' tax coffers are overflowing. From the state bureaucracy to local city halls and school districts, the many levels of government in California collect over $110 billion in taxes, fees and assessments. That's about $3,475 paid for every man, woman, and child living in this state. It's about $7,179 for every working person - those who make up the bulk of actual taxpayers.

Evidence of the latter: A ballot initiative recently submitted to the attorney general for title and summary would, if passed, pave the way for about $5 billion a year in additional state taxes. Others would try to make it easier to raise property taxes by passing local general obligation bonds with a lower vote requirement.

The total of state and local government revenues is growing by more than $5 billion a year. Most of the year-to-year growth is in personal income taxes, about $2.4 billion, and sales taxes accounted for $1.5 billion.

These figures are from Cal-Tax's newly released "Taxing California" report, using the best available federal data to compare tax burden in the 50 states. Although newly released, the federal data are from fiscal year 1995-96, due to workload problems at the Census Bureau.

Among the report's findings:

  • Ranking the states. Where does California fit among the 50 states? Is our tax burden high, low or medium? The $3,475 per person mentioned above ranks 11th highest. Measured on a per-worker scale, California's $7,179 burden is seventh highest in the nation. But, some will ask how that rates in affordability, since Californians also have higher incomes. A popular measure of tax affordability is tax burden per $1,000 of personal income. Advocates of higher taxes like to point to this measure as evidence that our tax burden appears about average compared to the 50 states.
  • Apples and oranges. Using an income-based ranking can be deceptive. Many states that rank high on the scale of taxes per $1,000 of personal income are simply low-income states. They are places like North Dakota, Mississippi, and South Carolina. These are states that, because of their low incomes and low tax bases, must exert a higher "tax effort" simply to provide basic services and facilities. California doesn't play in that league. This is a high-income state that must be compared to places like Massachusetts, New Jersey, Connecticut, and New York - places that compete with California for new jobs; places that have similar tax bases and can provide an apples-to-apples comparison of tax burden.
  • Apples and apples. When measured in the right league, compared to the 16 other high-income states, Californians' total tax and fee burden of $143 per $1,000 of personal income ranks sixth highest. Some of California's competitor states rank much lower. For example, New Jersey ranks ninth, Connecticut is 10th, Illinois is 14th. Even Massachusetts, with its reputation for high taxes, ranks 11th, with a tax burden that is almost 10 percent lower than California's. Clearly, there is room for improvement - for lower taxes and greater competitiveness - as California tries to attract jobs and economic investment.
  • Looking back. How does this tax burden compare with years past, when California didn't have Proposition 13 or voter approval requirements that limited taxes? Surprisingly, even with strong tax limitations, the price of government has continued to rise at a steady pace. If we add other non-tax revenues to our tax and fee total, Californians now pay over 16 percent of personal income to support state and local government. This is nearly identical to the level in the 1970s that spawned the tax revolt. The main difference is that taxes are a smaller proportion of the total, and more focus has been on fees and other sources of money that aren't as visible as taxes.

 

Stephen Kroes

There are necessary taxes and fees that appear to be bringing in more than enough to keep fire trucks running and to pay for police protection, to educate our children and to fix potholes in our streets. We are currently seeing very strong tax collections, creating large surpluses at all levels of government.

Tax increases? Certainly not in today's environment, while the state is locked in fierce competition for jobs and commerce. Californians already shoulder a heavy tax burden.

Government should meet priority needs of California taxpayers, and if more than $110 billion (probably more than $130 billion in 1999-2000) isn't enough, we're in trouble.

- Stephen Kroes is Cal-Tax vice president and director of research. His report, "Taxing California," is published in this issue of Cal-Tax Digest.
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Government should meet priority needs of California taxpayers, and if more than $110 billion isn't enough, we're in trouble.