Wednesday, April 16, 2008

CA Taxes: Rich vs. Poor


It's the day after April 15th, and many are breathing a sigh of relief that tax day is over. But the business of tallying up the tax checks is just beginning for many states facing budget shortfalls.  I live in CA, where the budget picture seems to get worse with every passing week.  The current budget gap is estimated to be $16.5 billion. 

We often read that the rich don't pay their fare share and that the poor pay too much in taxes.  Or we'll read on the other side that the rich are overtaxed while the poor are getting a free ride.

Surfing around this morning, I found an article from the Ventura County Star on where the money really is:

Sure enough, the state Franchise Tax Board's most recent annual report on California income taxes revealed bad news for those with million-dollar-plus annual incomes: Although these 45,696 ultra-rich made up just 0.3 percent of California tax filers in 2005, they paid 36.5 percent of the income taxes.

This is why CA's budget fluctuates wildly with the state of the economy.  If those .3% of rich Californians are hit by an economic slowdown or recession, their incomes fall and the state budget gets whacked.

Ah, but the progressive taxers still feel that the rich aren't paying enough.

That report gives the state's progressive income tax structure its due. It notes that a single mother with one child in California last year did not pay any income taxes if she earned less than $39,283. A married couple with two children paid no taxes on its first $49,083 in income.

Most would agree it's a good thing that the people who struggle hardest to make ends meet get a pass on having to pay state income taxes.

The problem, says the Budget Project report, is that sales taxes, gasoline taxes, property taxes and all the rest take a very big bite out of the incomes of poor and middle-income Californians. The bite is so big that it more than makes up for the break on income taxes.

"Measured as a share of family income, California's poorest families pay the most in taxes," the report says. "The poorest fifth of the state's households, with an average income of $11,100, spend 11.7 percent of their income on state taxes. In comparison, the wealthiest 1 percent, with an average income of $1.6 million, spend 7.1 percent of their income on state taxes."

So will this result in an effort to increase taxes on the .3% and reduce taxes on everyone else?  If so, won't this make the wild budget swings even more dramatic?

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