Are High Taxes in California a Myth?

Our Senior Program Office and guest blogger, Chad Finlay gives us the lowdown on California taxes.

With the tax filing deadline just around the corner, taxes have been in the news lately (if you haven’t filed your taxes yet, you’re not alone.  LA ranks 8th in the nation in tax filing procrastination).
 
On April 9, the Legislative Counsel (the state Legislature’s lawyer) released a statement saying that legislators can legally raise taxes with a majority vote, not the usual two-thirds, in certain circumstances.
 
Earlier, on April 1st, the sales tax in CA rose 1% as part of the recent state budget agreement.  This of course, led to the common complaint that California already has the highest tax rate in country.  But do we really?
 
In short, no.  And yes.

Keep reading to find out why.  

For the most part, states use three type of taxes to raise revenue – income, property, and sales.  Based on their states’ demographics, and their neighboring state taxes, states then adjust their tax rates to theoretically optimize tax receipts without angering their residents.  For instance, Oregon which has no state sales tax, then gets most of its tax revenue from income taxes.
 
So where does CA rank?  According to data just released by the U.S. Census Bureau, California ranks 12th in the nation in overall taxes PER CAPITA. The Sacramento Bee has a list of the top 12 – number one is Alaska and 2nd is Vermont.
 
So where does the perception come from that CA has among the highest taxes?  The answer comes come from numbers crunching from our UCLA student intern, Manmit Singh.  The overwhelming majority of CA’s tax revenues come from state income tax – over half (58%) of our state’s taxes. (the national average is 38%)  Sales tax accounts for about one-third of our total taxes, and property tax?  A paltry 2% thanks to Prop 13.  Since sales tax is considered a “hidden” tax that we usually don’t carefully track or are aware of, California’s reliance on income tax is very visible to the state’s taxpayers and fuels the perception that we have high taxes relative to other states. 
 
What does this mean for those interested in social change?  Given CA’s reliance on income and sales tax, low-income residents are the hardest hit.  Since they typically don’t own property, they can’t enjoy the benefits of a low property tax, and the other benefits like deducting mortgage payments from their taxes and any equity the home has.  So low-income groups bear more of the tax burden without as many benefits.  One possible solution to high income taxes?  Repeal Prop 13 and raise property taxes.  But California is not alone in relying mostly on income and sales tax.  13 states don’t even have property tax and another 17 have their property tax essentially round to zero percent of their total taxes. 
 
So while you’re rushing to finish your taxes by April 15th, remember that tax policy, while complex, does have an impact on economic and racial inequality.  Tax policy does matter.  Even when you’re 12th in the nation, not #1.

Chad responds to comments: 

As stated in the post, our figures are taken from the U.S. Census Bureau data - http://ftp2.census.gov/govs/statetax/08staxss.xls.  In 2008, CA collected a total of $117,361,976,000 in taxes.  Of that total, $2,279,103,000 were from property taxes.  That comes out to 1.94% of CA’s 2008 tax revenue, which is what we reported. 

Comments

[Fryden]

Whoever did the calculation that property taxes constitute only 2% of CA taxes needs to take remedial math. That is preposterous!

As they say in class -- "show your work."

BTW, property tax REVENUES today are higher than the bloated year PRIOR to the passage of Prop 13, even after adjusting for inflation and population increases.