California study finds poor pay higher tax - SJ Mercury-News

[Leigh Meyers <the.buffalo.in.the.midst@xxxxxxxxx>]

One of the reasons why 'you won't find it so hot if you ain't got that
Dough Re Mi.'

Repeat after me: Repressive, not regressive, Repressive, not
regressive, Repressive, not regressive.

Study finds poor pay higher tax
THEY SPEND 11.7 PERCENT OF INCOME, WHILE STATE'S RICHEST PAY 7.1 PERCENT

By Scott Duke Harris
San Jose Mercury News


04/13/2007

Low-income Californians pay a disproportionately large share of their
income in state taxes, while the Golden State's richest citizens spend
a much smaller share on taxes, according to a joint study by two
research groups.

The report, released five days before this year's April 17 tax filing
deadline, showed that the state's strongly progressive personal income
tax - demanding proportionately more from the wealthiest Californians
and nothing from the poorest - falls far short of counterbalancing the
regressive effects of sales taxes and excise taxes on items such as
gasoline, tobacco and alcohol. Property tax is also regressive,
according to the study.

Regressive taxes such as sales and excise taxes are set at fixed
amounts, regardless of income levels, thus affecting the poorest most
heavily.

"It's an upside down tax system: the more you earn, the less you pay,"
said Matt Gardner, executive director of the Institute on Taxation and
Economic Policy, based in Washington D.C.

Such inequities and the state's chronic budget shortfalls underscore
the need for a comprehensive "soups-to-nuts" review of the tax system,
including shelters that corporations and wealthy individuals use to
avoid taxes, said Jean Ross, executive director of the
Sacramento-based California Budget Project.

The analysis found that the poorest 20 percent of Californians - with
an average income of $11,100 in 2004 dollars - spent 11.7 percent of
their income on all types of state taxes, both direct and indirect.
The wealthiest 1 percent, with an average income of nearly $1.6
million, spend 7.1 percent on state taxes, and the next 19 percent
spent 8 percent on state taxes.

Moreover, the report noted, 1,343 of the state's 449,277 households
earning more than $200,000 paid no personal income tax in 2004, the
most recent year for which data were available. They benefited from
various tax breaks, including the research and development credit. The
number of these high-income "no tax" returns had more than doubled
since 1996, the research found.

While business groups and anti-tax advocates have often complained
about California's tax regimen, the report judged it "a moderate tax
state."

It ranked 13th among 50 states in terms of state taxes as a proportion
of personal income in 2004-05. In terms of total state and local
revenue as a percentage of personal income, the state ranked 19th in
2003-04, the most recent year for which data was available.

The report emphasized that California's tax burden has shifted from
corporations to individual taxpayers over a generation. Forecasters
have estimated that personal income tax will provide 54.7 percent of
the General Fund revenues in 2007-08, up from 35.4 percent in 1980-81.
Corporate taxes are expected to provide 10.6 percent of the General
Fund in 2008, down from 14.6 percent in 1980-81.

Moreover, the report emphasized, the net profits reported by
corporations for California tax purposes soared 143 percent from 2000
to 2004, while the total adjusted gross income of the state's
individual taxpayers increased by only 1.4 percent.

The report did not seek to assess the impact of the underground cash
economy or the wealthy who fail to report capital gains, Gardner said.
Nor does the study compute the impact of fees, such as sewer bills or
bridge tolls.

The tax inequities, the study concluded, exist despite California's
high personal income tax thresholds. A family of four with two
children that earned $47,671 would have no state income tax liability
in 2006. (The state's median household income was $51,755 in 2005.)

But the high threshold, Ross said, also means that low-to-moderate
income families receive minimal or no financial benefit from the
state's various credits, deductions and tax benefits.

To help ease the burden on low-income families, the California Budget
Project has long advocated a state earned income tax credit, patterned
on the federal model, that would increase refunds to low-income
families.

The research groups describe their work as non-partisan, but the
report is sure to factor into partisan debates. Across the political
spectrum, "everybody thinks they're the champion of fair tax policy,"
Ross said in an interview.

Contact Scott Duke Harris at sdharris@xxxxxxxxxxxxxxx or (408) 920-2704.