Contact: Ron Roach (916) 441-0490
March 1, 1996
California policy makers are hearing both of these arguments as they weigh their votes on proposals to raise or lower your taxes:
Whom do they -- and you -- believe?
Both sides in the debate cite some of the same data, but seek to measure it in a way that makes their arguments most believable. That is the way it has, is and always will be done in the lobbying tug-o'-war in Sacramento (and other seats of government).
There are a number of methods to measure the burden. None is perfect.
Some analysts -- particularly those who advocate higher taxes and, therefore, more spending -- embrace the measurement of tax burden per $1,000 of personal income. This shows California as a moderate tax state, ranking 22nd highest based on 1991-92 data from federal sources. (Updated numbers are overdue, and some blame the federal budget stalemate.)
However, it defies logic to say that California's real-life burden for financing state and local governments is just average, even when using a percentage of personal income as the yardstick.
Take a close look and you will see that this measurement is influenced more by income than by taxes. Some states notorious for their high taxes even rank well below California.
Of the 10 highest income states, only New York ($178.93 per $1,000 of personal income) of the contiguous 48 has a heavier burden than California's $142.52. Falling in line well below
California are No. 27 New Jersey ($137.12), No. 37 Massachusetts ($131.37), No. 41 Connecticut, No. 45 Illinois, No. 46 Maryland and No. 48 New Hampshire ($117.87).
When was the last time you heard Massachusetts called a low-tax state? Those who continually tout this measure are providing a distorted picture.
Meanwhile, some low-income tax states rank very high on the list of tax burden per $1,000 of personal income. Why do Utah, Idaho, New Mexico, Iowa, Arizona, Louisiana, South Carolina and North Dakota all rank higher than California?
Answer: More densely populated and higher income states spread government costs over a greater tax base -- which explains a slightly lower tax burden per $1,000 of personal income in California. It takes a higher proportion of incomes in these other states simply to fund a basic government.
Why should California policy makers feel pressure to "keep up" with states that rank higher merely because they are poorer and less populated?
Another problem with measuring tax burden is that averages can be deceiving. California has a progressive tax system, which means the higher your income, the greater percentage you pay in taxes. But the typical tax burden comparison is only looking at average burdens, which are skewed downward by those who pay little or no tax at all.
Personal income tax figures from the Franchise Tax Board show that, in California, the top 10% of high-income taxpayers are footing 70% of the tax bill. Those who actually carry most of the tax burden pay far more than the averages show.
If we are concerned about how California competes with other states for new jobs, we must pay attention to the burden on all Californians, especially small business owners and others who make investment decisions in California. If their tax burden is high, they may look to other states that allow a greater after-tax return on their investment.
So the next time someone suggests that your taxes are too low, or only average, take a closer look. And make sure you include assessments and fees which, as surrogates for taxes, make
up 21% of the burden.
If you are a California taxpayer, chances are all this merely reinforces what you already know.