It’s Tax Day, marking the deadline for making personal income tax (PIT) payments — part of our collective contribution to funding a civilized society, to loosely adapt the words of Oliver Wendell Holmes, Jr. Paying PIT is not the only way we pay for a civilized society. There are also sales and excise taxes, property taxes, and corporate income taxes, among others.
As we discussed in our 2015 update to our Who Pays Taxes in California? report, when it comes to state and local taxes it is actually families with incomes in the bottom fifth of the distribution who pay the largest share of their incomes in these taxes. This is partly because high-income families disproportionately receive tax breaks. We’ll be releasing a new report in the near future discussing California’s PIT tax expenditures — a wonk’s term for tax breaks — and who they tend to benefit.
In the meantime, let’s recall that even without accounting for the federal deduction for state and local taxes paid, California families in the lowest fifth pay a greater share of their incomes on average in state and local taxes (10.6 percent) than all but the richest 1 percent of Californians (11.2 percent). And once you do account for this federal deduction, the poorest fifth of California families pay the greatest share of their incomes on average (10.5 percent) of all California families — even the top 1 percent (8.7 percent).
The interactive graphic below shows the impact of federal deductability on state and local taxes paid across the income distribution. These tax and income figures come from the Institute on Taxation and Economic Policy.
California’s tax system would look even less fair if not for the effect of Proposition 30’s tax rate increases on high-income taxpayers. Californians approved Proposition 30 in 2012, raising the state sales tax rate through 2016 and personal income tax rates on very high incomes through 2018. There is now a ballot measure making its way through the process for the November 2016 election that would extend Proposition 30’s high-income tax rate increases through 2030.
The revenues that Proposition 30’s income tax rate increases bring in help pay for a significant portion of California’s civilized society: a projected $7.7 billion in 2016-17, nearly as much as the $8.0 billion in General Fund support proposed by Governor Brown for the California State University, University of California, and student financial aid combined. These income tax rate increases almost exclusively affect the top 1 percent of Californians — so if they’re allowed to expire at the end of 2018, not only will the state have fewer resources available to invest in its people, but California’s tax system will become even less fair.
— William Chen