Tax Day 2012: Who Pays?

Today is tax day – the day when Californians file their income tax returns and make a collective investment in their communities. Tax day presents an opportunity to reflect on all of the public structures that taxes support. Today, families will turn on the tap and be certain that the water coming out is clean and drinkable thanks to our public health infrastructure. When their kids play at the local park, parents can rest easy knowing that their tax dollars helped support environmental regulations that made significant improvements in the quality of air we all breathe. As commuters across the state head to work or school, they can thank taxes for the roads, bridges, bike paths, and transit systems they’ll use. And all of us will benefit from our collective investment in public schools, colleges, and universities that prepare the next generation for the workforce and help ensure that California remains economically competitive in the future.

While we all benefit from these investments, a new CBP analysis released for tax day shows that the wealthiest Californians actually pay a smaller share of their incomes in taxes than low- and middle-income Californians. As this chart shows, the top 1 percent of California’s families, with an average income of $2.3 million, pays 7.4 percent of their incomes in state and local taxes, compared to 10.2 percent paid by the bottom fifth of families, whose average income is just $12,600, and 8.1 percent paid by families in the middle fifth. This difference partly reflects the fact that lower-income families pay a larger share of their incomes in sales and property taxes than higher-income families.

Our analysis also shows that the number of high-income households paying no California income tax at all has more than tripled since the late 1990s. Nearly 2,000 taxpayers with incomes of $200,000 or more paid no California personal income tax in 2009 – the most recent year for which data are available – up from fewer than 600 households in 1997. These households paid no California income tax by using a variety of deductions and credits, such as the mortgage interest deduction and the state’s Enterprise Zone Hiring and Enterprise Zone Sales and Use Tax Credits.

Taxes are likely to remain front and center even after tax day is over. Californians could have the opportunity to vote on one or more tax initiatives on the November ballot, as we recently blogged about here. Stay tuned for the CBP’s analyses of these measures in the coming months.

— Samar Lichtenstein