“Is California Really a High-Tax State?”
That is the headline on a recent report from the Institute on Taxation and Economic Policy (ITEP), a liberal Washington, D.C. research group that wants us to believe the answer is “no” even as our wallets are screaming, “Yes!”
The report received a fair amount of publicity, as have ITEP’s past publications with similar themes, so it warrants some discussion.
As the leaders of the two largest taxpayer organizations in California, our conclusion is that while the data presented in the study may be technically accurate, the conclusions drawn therefrom are questionable.
The thesis of the report is that for lower-income households, California’s tax burden is similar to that of states against which California competes, chiefly Texas and Florida. Specifically, the report claims that “California has lower taxes for the bottom 40 percent of earners.”
The ITEP analysis focuses on income taxes and acknowledges that California has high rates for wealthy individuals. To be more accurate, it should be noted that California’s 13.3 percent rate on the very rich is, in fact, the highest in the nation. Moreover, the recent removal of the wage cap on unemployment insurance payment subjects all wage income to the payroll tax, which means the state’s top marginal individual income tax rate on wage income (not all income) is now 14.4 percent.
ITEP then downplays California’s tax burden by defining “high-tax” and “low-tax” very differently than you might expect.
Most people compare taxes in a straightforward manner: The sales tax is 10.75 percent in Alameda, 7 percent in Miami, and 0 percent in Bozeman, so if you buy a $600 widget, the additional tax will add $64.50, $42 or $0, respectively.
If you are thinking about moving, you might compare income taxes. The tax for a single filer with $110,000 in taxable income and no dependents is $6,882 in California, $4,840 in Colorado, $0 in Texas, etc. (In addition to the highest income tax rate for the wealthy, California has a 9.3 percent rate that kicks in at a modest $68,350 for single filers.)
Commuters might compare gas taxes: 57.9 cents per gallon in California (the highest in the nation, set to increase July 1 to 59.6 cents, 25 cents in Connecticut, 12 cents in Vermont, and so on. (This is just the excise tax –additional state and federal taxes and fees increase the government’s take to roughly $1.21 per gallon in California.)
Starting a business? Compare California’s corporate tax rate of 8.84 percent to 9.8 percent in Minnesota, 2.4 percent in North Carolina, and 0 percent in South Dakota, etc.
ITEP does not use such apples-to-apples comparisons. Rather, it attempts to compare taxes as a percentage of income. So, a tax of $50 in California could be deemed “lower” than a tax of $10 in another state if the Californian has a sufficiently higher income.
This requires more estimates and statistical gymnastics – complicated by the fact that ITEP excludes taxpayers aged 65 and older, which leaves out roughly 18 percent of the U.S. population – and turns the report into one about income as well as taxes.
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Another interesting fact in ITEP’s methodology is the inclusion of property taxes. Assuming for the sake of argument that the study’s apportionment of property taxes equally between landlords and renters is valid, it appears that Proposition 13 is a major factor in suppressing the tax burden for low- to moderate-income taxpayers. If this is true, ITEP and its ideological allies should embrace Proposition 13 rather than seek to repeal or weaken it.
We appreciate the Washington group’s report, but having worked closely with taxpayers here in California for decades, we respectfully disagree with its conclusion. As we work with elected officials and others to make California the best it can be, it’s important that we all have an accurate perspective about the tax burden and why we have concerns.
No matter where you sit on the spectrum between fiscal conservatives and progressive interests, there is value in truthful information about California’s tax burden. We ignore that truth at our own peril.
Jon Coupal is president of the Howard Jarvis Taxpayers Association. Robert Gutierrez is president of the California Taxpayers Association.