The San Francisco Chronicle has an interesting piece today asserting that when you look at all the taxes and fees, California is not the most taxed state. It is, instead 19th. However, there are two assertions that seem internally inconsistent:
While on average California taxes are only moderately high, they are near-stratospheric for the wealthy, who pay a marginal personal income tax rate of 9.3 percent, one of the most lofty in the nation. Montana is highest, with a top rate of 11 percent.
and then this:
For one thing, California was indeed at the top of the tax list before voters approved Proposition 13. After the proposition became law, California quickly fell from high-tax to medium-tax status.
Now, the resulting mix of taxes feeds the perception that Californians are overburdened.
Because of Proposition 13, state residents pay relatively high sales and income taxes, and relatively low property taxes. That means that they have their noses rubbed in the first two taxes every time they go to the store or cash a paycheck. But they see their property tax bills only once a year.
Now, it seems to me, that wealthy Californians own property and the wealthier you are, the more property you own. In fact, many in CA are wealthy simply because the equity in their property has grown so quickly. I could not afford to buy my house if I were looking to buy today as our paper equity has almost doubled. So the logical conclusion in my mind is that the burden is not disproportionately on the wealthy but on the middle class, particularly those who don't own their first home yet. They pay so much in income tax and don't have the home deductions to decrease their burden that it's difficult to set aside the money for the down payment on a first home.
Posted by Justene Adamec at August 31, 2003 09:20 AM | TrackBackThis is why I probably won't practice here after law school.
Yeah, the biglaw starting salaries are around $125,000 a year, but when a one bedroom condo runs in the 200,000+ range, that's not so good.
Particularly becuase there's growing signs that the high California home prices are untenable in the long run.
I don't want to buy in now when the rug is going to get pulled out from under me.
WAGONS EAST!
Posted by: The Angry Clam at August 31, 2003 11:20 AM (Permalink)Taken as a whole (income, sales, and property taxes), California taxes are regressive. The wealthy pay a smaller percentage of their income than either the middle class or the poor.
However, CA taxes are less regressive than other states. So while the wealthy don't do that badly, they do worse than they do in most other states.
Posted by: Kevin Drum at August 31, 2003 04:21 PM (Permalink)This is a bit off subject, but has anyone put any thought into how landlords in Los Angeles, Beverly Hills, Santa Monica, West Hollywood, San Francisco (or any other city with a rent control ordinance on the books) will be able to afford higher property taxes on their rental property if they are precluded from passing on the costs to their tenants?
Posted by: Sean at August 31, 2003 04:39 PM (Permalink)So the 9.3% hits the wealthy hard? Try the middle class. If I recall correctly, the 9.3% marginal tax rate kicks in at a fairly low levell, somewhat less than $40k.
Posted by: Mace at August 31, 2003 07:25 PM (Permalink)Well, why should anyone be surprised. Of course, the middle class is bearing the brunt. And the right-wing tax policies of the current administration in Washington keeps pushing the trend further in that direction.
Duh!!
Posted by: Otto at August 31, 2003 08:00 PM (Permalink)Actually, if you compare the percentage of total income earned by a group to it's corresponding contribution to federal revenue (and, let's just include payroll tax in addition to income tax), the poor and middle class do not bear an appropriate percentage.
There are two ways to fix this: tax cuts for the wealthy, or tax the poor.
I kind of like "tax the poor" more, because it's so awful sounding. But if you want tax fairness, that's the way to do it.
Posted by: The Angry Clam at September 1, 2003 08:15 AM (Permalink)... except that "unerned income" (ie: investment income) is taxed at a much lower rate than earned income. Also, unearned income is taxed in such a manner that the gains and/or losses are remarkably divorced from reality, which makes a comparison between the portion of "income" taxes paid by the middle class and the upper class difficult to make. Income from real estate investments, in particular, is one of the best (legal) tax dodges in America, thanks to accounting rules regarding depreciation. This is a bit of a gross oversimplification of accounting rules, but it is possible to turn a real estate investment that brings in a $150,000/ year net return into a "paper" loss of $100,000.
Posted by: Sean at September 1, 2003 11:20 AM (Permalink)