Middle-Income Parents Get the Short End of the Stick

Fewer than two out of 100 of the wealthiest 1 percent of California taxpayers would owe more in personal income taxes if the Commission on the 21st Century Economy’s – aka the “tax commission” – proposals for overhauling the state’s tax system were implemented. How many middle-income taxpayers would owe more? About two out of five – 26 times as many.

Thanks to a Franchise Tax Board (FTB) analysis presented at a recent Assembly Revenue and Taxation Committee hearing, we now know that a far greater share of low- and middle-income taxpayers would see their personal income taxes increase under the tax commission’s proposal. Overall, the FTB estimates that approximately two-thirds of the state’s taxpayers – 7.2 million – would see a reduction in their personal income taxes, while about one-third – 3.4 million taxpayers – would face an increase. But a full 38.3 percent of taxpayers in the middle fifth of the income distribution – those with incomes between about $27,000 and $47,000 – would owe more, compared to 21.6 percent of taxpayers with incomes of about $85,000 or more and a mere 1.5 percent of taxpayers with incomes of at least half a million dollars.

The tax commission’s plan would hit middle-income families with children particularly hard since it calls for the elimination of most personal income tax credits and deductions, including the dependent credit, which reduces the amount of taxes owed by taxpayers with children or certain other relatives. Under the current tax system, a married couple with two children and an income of $69,000 would owe $158 in personal income taxes if they claim the dependent credit and the child and dependent care expenses credit, which reduces the amount of taxes owed by families with qualifying child care expenses. However, without the ability to claim these credits under the tax commission proposal, this family’s income taxes would increase more than five-fold to $851. In contrast, a married couple with the same income but no dependents would owe nearly one-third less in taxes if the tax commission’s recommendations are implemented than they owe under the current tax system.

— Alissa Anderson

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