Cal-Tax Research

Taxing California
Analysis of 1993-94 Federal, State and Local Tax Burdens

By Stephen Kroes

Highlights

  • Compared to other high-income states, California has a high tax burden, ranking only behind New York and Hawaii.
  • The continuing effects of the 1990s recession caused California's tax burden ranking to drop in 1993-94.
  • The burden of federal taxes on Californians increased in 1993-94, ranking fifteenth highest per $1,000 of personal income.
  • Californians pay taxes and fees of $2,767 per worker to local government, $3,637 per worker to state government, and $10,147 per worker to the federal government for a total tax burden of $16,552 for each working taxpayer.
  • Fees and assessments grew by almost $2 billion in 1993-94 - faster than all California state and local taxes combined.

This report provides Cal-Tax's annual update of tax burden comparisons across the 50 states, based on figures for fiscal year 1993-94. The primary data source is the federal Census Bureau, which is the only source of comprehensive data on state and local tax and fee collections. The Census Bureau currently requires about three years to compile the data on each state and its local governments.

The year examined in this report, 1993-94, was at the end of California's deep recession, and tax revenues were still in a slump. At the same time, many other states were continuing healthy economic growth. These factors combine to lower California's tax burden ranking against other states.

A subsequent report will compare California state and local government spending with other states.

How Does California Rank?

California's cities, counties, districts, and state government collected over $98 billion in taxes, fees and assessments in fiscal year 1993-94. This amounts to over $3,100 per capita, $6,400 per working person, or about 14 percent of all personal income earned in California.

On a per capita basis, California's tax burden ranked fourteenth highest among the 50 states. Last year's analysis showed California ranking eleventh by this measure.

Measured per worker, California's tax burden ranked eleventh highest in the nation. This ranking is a decline from last year's seventh place.

Both of these tax burden measures showed an actual increase over last year, but other states increased even more, thus pushing the rankings down.

When measured against personal income, California's overall state and local tax burden declined some in 1993-94, ranking twenty-seventh highest. The previous year's ranking was twenty-third. One explanation for this decline is the deep recession that gripped California in the early 1990s. The state began recovering from that recession in late 1993, but the initial recovery was slow, and tax revenues did not respond immediately. California's revenue system seems to be quite income- elastic, an economists' term that means that revenues are very sensitive to income fluctuations, growing faster than income during a growing economy and slowing down dramatically when the economy goes downhill.



Stephen Kroes is director of research for Cal-Tax. He also focuses on local government finance issues.
In addition to state and local taxes, fees, and assessments, last year Cal-Tax began reporting federal tax burden by state. In 1993-94, federal tax collections from California sources totaled more than $156 billion. This adds to Californians' tax burdens an additional $4,900 per capita, $10,100 per worker, or 22 percent of personal income.

When federal, state, and local tax burdens are added together, California ranks twelfth per capita, ninth per worker, and eighteenth per $1,000 of personal income.

California Ranks High Among Relevant States

Many analysts rely solely upon the listing of taxes per $1,000 of personal income as a definitive measure of tax burden. Intuitively, that seems like the best measure, since it controls for varying income levels among the states. However, when comparing against all other states, especially when ranking the states, this can be a deceptive measurement.

As explained in the March 1996 Cal-Tax Policy Brief, How (Not) to Measure Tax Burden, measurements of tax burden based on income naturally skew the rankings so that most high-income states rank very low and low-income states rank high.

State and Local Tax and Fee Burden
Highest Income States		 Table 1
        Taxes & Fees National
    '93-94 Income Income Per $1,000 Tax Burden
State Per Capita Rank Personal Income Rank
1. New York $25,700 4 $178.45 2
2. Hawaii 23,498 7 169.17 4
3. California 22,400 11 140.18 27
4. Delaware 24,286 6 139.74 30
5. New Jersey 27,891 2 135.71 34
6. Massachusetts 25,771 3 130.95 38
7. Connecticut 29,551 1 130.68 39
8. Maryland 24,637 5 128.67 44
9. Illinois 23,346 8 124.70 45
10. New Hampshire 23,225 9 113.56 50
Alaska is not included since it exports much of its tax burden on non-residents (mostly oil companies).

States with a small economic base (many of which are also sparsely populated) must by necessity exert a greater tax effort (i.e., higher tax rates) simply to provide basic infrastructure and services such as schools, highways, prisons, health and welfare. High income states, like California, are not forced to exert the same kind of tax effort to provide those services and facilities. Indeed, a smaller percentage of income can yield an even greater level of public services if the economic base is large.

Therefore, a simple ranking of all states' taxes and fees per $1,000 of personal income does not provide a useful comparison. States must be grouped with other states of similar income levels to provide a fair comparison. Table 1 shows this measure of tax burden for the highest-income states, including California. When shown in this context, California's tax and fee burden of $140 per $1,000 of personal income is relatively high. California ranks third among the top 10 income-producing states, behind only New York and Hawaii. Note how low many of the high-income states are ranked in the national comparison. Massachusetts, which is often thought of as a high-tax state (nicknamed "Taxachusetts"), ranks only thirty-eighth against the 50 states with a tax and fee burden well below California's.

Revenue Growth

As in last year's report, fees and assessments are growing faster than any other revenue source in California. Figure 3 shows that 1993-94 property tax collections fell by $140 million and corporate income tax revenues fell $94 million from the previous year. Both of these were no doubt due to the recession's continuing impact. Personal income tax and sales tax collections were up several hundred million dollars each, but fees and assessments eclipsed all other categories, growing by almost $2 billion.

This continues a long-term trend experienced since the early 1980s, as shown in Figure 4. Fees and assessments have been the most consistently growing portion of Californians' tax burden in the wake of tax-cutting Proposition 13, helping to bring the total price of California government back to virtually the same level as before Proposition 13's passage in 1978. The 1990s recession halted that trend, but the hiatus is likely to be temporary.

Federal Taxes

Federal taxes paid by Californians rose in 1993-94 to $156 billion, or about $5,000 per capita, $10,100 per worker, and 22 percent of personal income. This is an increase over 1992-93 of four to eight percent, depending on which tax burden measurement is used. Total tax burden, including federal, state and local impositions, equals over 36 percent of personal income, $16,500 per worker, or $8,100 per capita.

Sources

State and local revenues were obtained from the U.S. Department of Commerce, Bureau of the Census, via their Internet web site at: http://www.census.gov. Aggregate federal tax collection data comes courtesy of Tax Foundation in Washington, DC. Tax Foundation uses an economic model to estimate collections from income earned in each state. Tax Foundation's Internet web site can be found at: http://www.taxfoundation.org.

Population as of July 1, 1994 was obtained from the Census Bureau, included in their reports on state and local finances. Labor force data used to calculate per worker figures were obtained from the U.S. Department of Labor, Bureau of Labor Statistics at their Internet web site: http://stats.bls.gov. Monthly data were utilized to calculate a fiscal year average of labor force for each state. Fiscal year personal income figures were calculated using quarterly data published by the U.S. Department of Commerce, Bureau of Economic Analysis. BEA can be found on the Internet at: http://www.bea.doc.gov.

All calculations of tax and fee burden per capita, per worker, or per $1,000 of personal income were made by Cal-Tax. Please cite the California Taxpayers' Association as source for any re-use of the data in this report.

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