All California students pursuing higher education and career pathways should have access to an affordable education and the ability to achieve economic security. And California offers many postsecondary institutions for students to pursue their goals, including colleges, universities, community colleges, and trade schools. Yet, high costs of higher education and career training programs, along with economic hardship exacerbated by the COVID-19 pandemic has caused many students to cancel their education and career training plans. This is hitting students from households with low incomes the hardest. 1“Households with low incomes” are defined as households with annual income of less than $50,000. State policymakers can support students in building their education and careers by making education affordable and addressing costs of basic needs so California’s communities are home to thriving students, families, and workforces.
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The high costs of postsecondary education are a major barrier for students with low incomes to stay enrolled and complete their coursework.
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Since the beginning of the 2021-22 academic year, more than 1 in 5 households with low incomes included at least one prospective student who canceled all plans to take classes from a postsecondary institution due to impacts of the pandemic (23%).2The US Census Bureau, Household Pulse Survey defines postsecondary institutions as colleges, universities, community colleges, trade schools, or other occupational schools. Students living in households with low incomes were more likely to cancel their education plans than California households overall (18%) and compared to households with higher incomes (14%). Students in Black and Latinx households also canceled education plans at higher proportions than all households (24% and 19%, respectively).
There are various reasons why students canceled their postsecondary education plans, but financial stress is a key factor. Of those California households where at least one member canceled all plans for postsecondary education, 41% did so because they were unable to pay for educational expenses due to pandemic-related changes to income and 45% of households with low incomes canceled for the same reason.3Survey respondents were able to select various reasons why plans to take classes were canceled, including being unable to pay for educational expenses, having COVID-19 or having concerns about the virus, uncertainty about how classes or programs would change, among others. Respondents could choose more than one reason for canceling plans.
The high costs of postsecondary education are a major barrier for students with low incomes to stay enrolled and complete their coursework. At a time when California households with low incomes are much more likely to be struggling to meet basic needs, policymakers should ensure that Californians with low incomes seeking postsecondary degrees and certificates have the financial support necessary to complete their programs, provide for themselves and their households, and build their lives across the state’s diverse communities.
Support for this report was provided by the Conrad N. Hilton Foundation.
“Households with low incomes” are defined as households with annual income of less than $50,000.
2
The US Census Bureau, Household Pulse Survey defines postsecondary institutions as colleges, universities, community colleges, trade schools, or other occupational schools.
3
Survey respondents were able to select various reasons why plans to take classes were canceled, including being unable to pay for educational expenses, having COVID-19 or having concerns about the virus, uncertainty about how classes or programs would change, among others. Respondents could choose more than one reason for canceling plans.
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Introduction
All Californians deserve a safe and stable place to call home – a home that is affordable, located near their work and communities. Even before the COVID-19 pandemic, California’s serious housing affordability challenges threatened the well-being of families and communities and the future growth of the state. Throughout the pandemic, job losses have hit low-wage workers hardest, and hundreds of thousands of renters with low incomes have sought assistance as they are strained to pay rent.1Alissa Anderson, California Low-Paid Workers & Their Families Struggle as Jobs Decline Again (California Budget & Policy Center, February 2021), https://calbudgetcenter.org/resources/california-low-paid-workers-their-families-struggle-as-jobs-decline-again/. Enrique Lopezlira, et al., California’s Labor Market in the Time of COVID-19: 2021 Chartbook, February 2022 (UC Berkeley Labor Center, February 1, 2022), https://laborcenter.berkeley.edu/californias-labor-market-in-the-time-of-covid-19-2021-chartbook/. “California COVID-19 Rent Relief Program Dashboard,” State of California Business, Consumer Services, and Housing Agency, Housing Is Key Rental Assistance (webpage), accessed April 19, 2022, https://housing.ca.gov/covid_rr/dashboard.html. As the pandemic moves into a new stage and many emergency protections are lifted, millions of Californians continue to live in a state of emergency, struggling to keep a roof over their heads.
About 2.1 million California households were facing housing hardship in the first months of 2022, meaning people were already late on rent or mortgage payments and/or had low confidence in their ability to make their next payment.2Except where otherwise noted, results cited are from Budget Center analysis of US Census Bureau, Household Pulse Survey public-use microdata, representing multiweek averages for Week 41 (data collected December 29, 2021 to January 10, 2022), Week 42 (January 26 to February 7, 2022), Week 43 (March 2 to March 14, 2022), and Week 44 (March 30 to April 11, 2022). Without support, these households risk housing instability, evictions, and in the worst case, homelessness.
Who are the Californians currently struggling to afford their housing? Understanding who is experiencing housing hardship can help state leaders target policies and funding to ensure families and individuals receive the support they need to remain in stable housing and thrive.
1. Renters Are Much More Likely to Face Housing Hardship Than Homeowners
Access to an affordable home is the foundation for a healthy life, especially for the more than 40% of Californians who live in rented homes. Californians with low incomes, and Black, Pacific Islander, and Latinx Californians are especially likely to rent – reflecting racist and discriminatory policies and practices in housing, employment, and education that have blocked millions of Californians from homeownership.3Monica Davalos, Sara Kimberlin, and Aureo Mesquita, California’s 17 Million Renters Face Housing Instability and Inequity Before and After COVID-19 (California Budget & Policy Center, February 2021), https://calbudgetcenter.org/resources/renters-face-housing-instability-and-inequity-before-and-after-covid-19/.
Renters are especially likely to be struggling to afford their housing. From January to April 2022, California renters were twice as likely as homeowners with mortgages to report housing hardship. About 33% of renter households reported being late on housing payments or having low confidence in their ability to meet the next month’s payments, compared to 15% of homeowners with mortgages.
Even before the pandemic, 1 in 2 renter households paid more than 30% of income toward housing and 1 in 4 spent more than half their income on housing.4Davalos, Kimberlin, and Mesquita, California’s 17 Million Renters. Hundreds of thousands of applications for rental assistance during the pandemic show that renters continue to struggle with housing costs.5California COVID-19 Rent Relief Program Dashboard.”
2. About Half of Renters with Low Incomes Are Struggling to Afford Housing Costs
All Californians, regardless of income, deserve a safe and stable place to live. Yet many Californians particularly struggle to pay for housing when their incomes are low because their work is undervalued, they do not receive fair wages, they have lost jobs, or they depend on retirement or disability benefits that are set below the cost of living. All of these conditions reflect the effects of racist, sexist, xenophobic, and ableist policies and practices in workplaces and housing.
Californians with low incomes are especially likely to rent, and renters with low incomes report the most difficulty paying for housing. About half of renter households with incomes below $50,000 reported housing hardship from January to April 2022.
Californians with low incomes have been hit hardest by pandemic job losses.6Alissa Anderson, California Low-Paid Workers. Enrique Lopezlira, et al., California’s Labor Market. They have also suffered the most as inflation has pushed up prices for food, energy, and other necessities, as well as rent.7Michael Weber, Yuriy Gorodnichenko, and Olivier Coibion, “The Expected, Perceived, and Realized Inflation of US Households Before and During the COVID-19 Pandemic,”NBER Working Paper 29640, (January 2022), https://www.nber.org/papers/w29640.
3. Racial Disparities in Rent Hardship Are Severe
Race or ethnicity should not affect one’s access to stable and affordable housing. Yet racial inequities are severe in Californians’ housing experiences. Californians of color are most likely to live in renter households and were most likely to have unaffordable housing costs even before the COVID-19 pandemic.8Davalos, Kimberlin, and Mesquita, California’s 17 Million Renters. Black Californians disproportionately experience homelessness, as do American Indian or Alaska Native and Pacific Islander Californians.9Monica Davalos and Sara Kimberlin, Who is Experiencing Homelessness in California? Tailored Housing Interventions are Needed for California’s Diverse Unhoused Population (California Budget & Policy Center, February 2022), https://calbudgetcenter.org/resources/who-is-experiencing-homelessness-in-california/. These patterns reflect effects of racist housing, education, and employment policies and practices that have blocked Californians of color from opportunities to achieve housing security.
While housing hardship is being felt across renters of all races and ethnicities in California, Black and Latinx renters are especially likely to report being late or lacking confidence in their ability to make rent payments. About 4 in 10 Black or Latinx renter households reported housing hardship from January to April of 2022. About 3 in 10 Asian renters and about 2 in 10 white renters reported hardship.
These inequitable housing experiences reflect and add to racial inequities in other pandemic hardships. Black and Latinx workers have been most likely to lose employment and slowest to recover from high unemployment rates.10Alissa Anderson, Inequitable Job Gains: Unemployment Is Twice as High for Black Californians as for White Californians (California Budget & Policy Center, August 2021), https://calbudgetcenter.org/resources/inequitable-job-gains-covid19/. Pacific Islander, Latinx, and Black Californians have also experienced the highest age-adjusted rates of COVID-19 death.11Adriana Ramos-Yamamoto and Monica Davalos, Confronting Racism, Overcoming COVID-19, and Advancing Health Equity (California Budget & Policy Center, February 2021), https://calbudgetcenter.org/resources/confronting-racism-overcoming-covid19-advancing-health-equity/.
4. Housing Hardship Affects California Low-Income Renters in All Types of Families
Across all stages of life, families of all types need affordable and stable housing in order to thrive. Housing security is vital for children because housing instability and homelessness can severely negatively impact children’s health and development. For adults, a stable home is the basic foundation required to maintain health, work, and dignified living conditions throughout all ages of life.
Struggling California renters include both families with children and adult-only households. From January to April 2022, about half of renter households with incomes under $50,000 reporting housing hardship were families with children (51%). About half included only adults (49%), including senior households.
5. Even Before COVID-19, Undocumented and Mixed-Status Renters Had Unaffordable Rents
All Californians, regardless of where they are born, should be able to count on having safe and stable housing. Even before the pandemic, Californians who were undocumented immigrants or in mixed-status families faced higher rates of poverty due to discriminatory barriers to meeting basic needs, including worker exploitation and inequitable access to safety net supports.12Sara Kimberlin, Aureo Mesquita, and Kristin Schumachher, Undocumented & Mixed-Status Families Are Blocked From Food Support (California Budget & Policy Center, May 2022), https://calbudgetcenter.org/resources/undocumented-mixed-status-families-are-blocked-from-food-support/.
Among renter households that include undocumented Californians, an estimated 58% were paying unaffordable rents before the pandemic, and about an estimated one-third were severely housing cost-burdened, paying more than half of their income toward rent.13Budget Center analysis of US Census Bureau, American Community Survey public-use microdata for 2019, using undocumented status imputation developed for the California Poverty Measure. See Figure 5. These high rates of unaffordable housing put these households at risk of housing instability and eviction.
Estimates of current housing hardship among undocumented and mixed-status renters are not available, but the pandemic has likely increased hardship for these Californians. While millions of California workers who lost jobs during the pandemic turned to unemployment benefits for support, workers who are undocumented were blocked from accessing this aid. Undocumented and mixed-status households have also been excluded from other COVID-19 relief and from many ongoing supports that help families meet basic needs like housing.
Conclusion
Every California family and individual deserves a place to live, to thrive, to share moments with their loved ones – a place to call home. Despite much wealth in our state, driving strong growth in state revenues even during the pandemic, millions of Californians continue to live in a state of emergency, struggling to keep up with housing payments and at risk of losing their homes.
Yet policymakers can act on proven policies and invest in support especially for California’s renters, who are most likely to be facing housing hardship – particularly renters with low incomes and those who are Black and Latinx, as well as undocumented and mixed-status households. Strategies can include:
Direct resources to emergency rental assistance, legal aid, and eviction protections that have helped keep Californians housed during the pandemic. State leaders can build on these protections and supports to ensure California’s renters can stay in their homes.
Increase the supply of affordable rental housing to ensure that all Californians have access to an affordable home – and make sure thehousing is designed to meet the needs of diverse types of households, including older adults, single workers, households that include people with disabilities, and working families with children.
Expand and target additional financial support to Californians with low incomes through taxpayer rebates, refundable tax credits, and safety net supports like CalWORKs, Supplemental Security Income/State Supplementary Payment and General Assistance.
Design, implement, and evaluate housing policies with a racial equity lens, ensuring fair access and outcomes for communities historically excluded from housing security and opportunities.
Ensure emergency housing supports and affordable housing are accessible to all Californians in need regardless of immigration status so that undocumented individuals and mixed-status families have the security of a stable home.
As the COVID-19 pandemic moves onto a new stage, leaving many emergency measures behind, policymakers must ensure no Californian is left without a safe and stable home. Strong state revenues present opportunities to keep Californians housed now and to invest in the state’s long-term housing affordability challenges. California’s state of emergency only truly ends when all Californians have a safe, stable, and affordable place to call home.
Support for this report was provided by the Conrad N. Hilton Foundation.
Except where otherwise noted, results cited are from Budget Center analysis of US Census Bureau, Household Pulse Survey public-use microdata, representing multiweek averages for Week 41 (data collected December 29, 2021 to January 10, 2022), Week 42 (January 26 to February 7, 2022), Week 43 (March 2 to March 14, 2022), and Week 44 (March 30 to April 11, 2022).
Davalos, Kimberlin, and Mesquita, California’s 17 Million Renters.
5
California COVID-19 Rent Relief Program Dashboard.”
6
Alissa Anderson, California Low-Paid Workers. Enrique Lopezlira, et al., California’s Labor Market.
7
Michael Weber, Yuriy Gorodnichenko, and Olivier Coibion, “The Expected, Perceived, and Realized Inflation of US Households Before and During the COVID-19 Pandemic,”NBER Working Paper 29640, (January 2022), https://www.nber.org/papers/w29640.
8
Davalos, Kimberlin, and Mesquita, California’s 17 Million Renters.
Budget Center analysis of US Census Bureau, American Community Survey public-use microdata for 2019, using undocumented status imputation developed for the California Poverty Measure. See Figure 5.
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Introduction
California children need a safe space to learn and grow while parents are at work, and the COVID-19 pandemic underscored just how essential child care is for the livelihood of workers and communities. California’s subsidized child care and development system has long been critical to the state’s economic infrastructure, helping families struggling to make ends meet cover the high cost of early care and education for their children.1Families are eligible for subsidized child care if the child who would receive care is under the age of 13; the family establishes an appropriate eligibility status, such as by having an income below the limit set by the state; and the family demonstrates a need for care, such as parental employment. Families generally must meet the same income guidelines applicable to child care to qualify for the California State Preschool Program, which is funded solely with state dollars. State law, however, allows up to 10% of families in the state preschool program to have incomes up to 15% above the income eligibility limit, but only after all other eligible children have been enrolled. The California State Preschool Program is a part-day program offered for roughly nine months of the year. Some children receive “wraparound” services that provide subsidized child care for the remainder of the day and throughout the entire year. To be eligible for the full-day California State Preschool Program, families generally must meet the same eligibility guidelines that are applicable to subsidized child care. But policymakers have never provided enough funding to offer care for all eligible families or to ensure providers and early educators are paid fair and just wages.2Kristin Schumacher, Exploring the Unmet Need for Subsidized Child Care and Development Programs in California (California Budget & Policy Center, February 2019), https://calbudgetcenter.org/resources/exploring-the-unmet-need-for-subsidized-child-care-and-development-programs-in-california/; and Kristin Schumacher and Erik Saucedo, California’s Subsidized Child Care Providers Are Overdue for a Pay Raise (California Budget & Policy Center, April 2022), https://calbudgetcenter.org/resources/californias-subsidized-child-care-providers-are-overdue-for-pay-raise/
State and federal dollars fund the state’s subsidized child care and development system that includes both child care programs and the California State Preschool Program. Due to chronic underfunding at the state and federal level, cash-strapped families and under-paid providers engaged in the state’s subsidized child care and development system did not have the resources to withstand the economic shock of the pandemic. This 5 Facts provides key details on how state and federal funding mitigated some of the impacts of the pandemic on California’s subsidized child care and development system and explains why policymakers should continue to invest ongoing resources in California’s families and providers.
1. Federal Policymakers Provided Significant One-Time Support for Child Care Providers and Families During the Pandemic
California has received more than $5 billion in federal relief funds during the pandemic to support under-paid child care providers and cash-strapped families who were not in a position to weather a health and economic crisis.3Federal policymakers also provided pandemic relief funding for Head Start, a federal early care and education program. These relief dollars flowed directly to Head Start providers across California and were not appropriated in the state budget. See US Department of Health and Human Services, Office of Head Start, Program Instruction ACF-PI-HS-21-03 (May 4, 2021), https://eclkc.ohs.acf.hhs.gov/policy/pi/acf-pi-hs-21-03. These one-time relief dollars were on top of the state’s annual appropriation from the Child Care and Development Fund (CCDF) — the primary source of federal funding for subsidized child care.
The first round of federal pandemic relief for child care came from the Coronavirus, Aid, Relief, and Economic Security (CARES) Act, enacted in March 2020.4California Budget & Policy Center, Federal Fiscal Relief and COVID-19: Implications for Californians (April 2020), https://calbudgetcenter.org/resources/covid19-federal-fiscal-relief-california/. California received $350 million, increasing federal funding for child care in California by 51% in the 2020 federal fiscal year over pre-pandemic levels.5State policymakers supplemented the CARES Act funding for child care with an additional $110 million in flexible CARES Act dollars allocated to states from the Coronavirus Relief Fund. See Department of Finance, Notification letter Section 11.90 – Child Care and Food Bank Support (October 19, 2020), https://dof.ca.gov/wp-content/uploads/budget/covid-19/covid-19-allocations/10-19-20_section_11-90-federal_coronavirus_relief_funds-child_care_and_food_bank_support-cc.pdf.
Federal policymakers provided additional child care relief in the Coronavirus Response and Relief Supplemental Appropriations Act (CRRSA) in December 2020, of which California received an additional $964 million. Finally, the American Rescue Plan Act (ARPA) became law in March 2021, providing a total of $3.7 billion for child care relief efforts in California — 62% for provider stabilization and 38% to supplement CCDF funding.6California Budget & Policy Center, American Rescue Plan Provides Assistance to Millions of Californians (March 2021), https://calbudgetcenter.org/resources/american-rescue-plan-provides-assistance-to-millions-of-californians/. Combined, CRRSA and ARPA provided a total of $4.7 billion in child care relief funds to California in the 2021 federal fiscal year. This was a six-fold increase in federal child care dollars over pre-pandemic funding from the Child Care and Development Fund.
2. State Policymakers Have Utilized Roughly Half of Federal COVID-19 Child Care Relief Funds
Federal child care relief funding has been significant and essential to support child care providers and working parents. To date, state leaders have appropriated 48% — roughly $2.5 billion — of the federal funds to keep the underfunded subsidized child care and development system afloat.
More than one-third of the appropriated relief funds, or $891 million, has been used to support California families. Policymakers have utilized relief funding to provide emergency child care for essential workers and to expand subsidized child care spaces for families with low incomes. Policymakers also have waived family fees for subsidized care for a limited time to ease families’ financial burdens.7See Kristin Schumacher, Erik Saucedo, and Marcela Salvador, CaliforniaFamilies Pay High Price for Subsidized Child Care (California Budget & Policy Center, March 2021),https://calbudgetcenter.org/resources/california-families-pay-high-price-for-subsidized-child-care/.
Nearly two-thirds of the appropriated federal relief funds — $1.6 billion — has been allocated to support child care and preschool providers. Relief measures have included provider stipends for both subsidized and non-subsidized providers, rate increases and rate supplements to compensate for chronically low payment rates, pandemic supports to ease the cost of keeping doors open during the pandemic, and other investments in quality and support programs.
The administration has struggled to distribute the large amount of federal relief funds in a timely fashion, and some measures, such as waiving family fees for working parents and provider pandemic supports, will end on June 30, 2022, increasing economic hardship. More than half of the federal relief dollars remain unallocated.
3. Remaining One-Time Federal Relief Funds to Boost Provider Payment Rates and Provide Care for More Children
Roughly half of the $5.2 billion in one-time federal COVID-19 child care relief dollars remain unspent. The $2.7 billion in unspent funds includes both CRRSA and ARPA dollars — both of which can be used for a variety of purposes to supplement existing child care funding in California.8US Department of Health and Human Services, Office of Child Care, Information Memorandum CCDF-ACF-IM-2021-1 (April 14, 2021), https://www.acf.hhs.gov/occ/policy-guidance/ccdf-discretionary-funds-appropriated-crrsa-act-public-law-116-260-signed-law; US Department of Health and Human Services, Office of Child Care, Information Memorandum CCDF-ACF-IM-2021-2 (May 10, 2021), https://www.acf.hhs.gov/occ/policy-guidance/ccdf-acf-im-2021-02; and US Department of Health and Human Services, Office of Child Care, Information Memorandum CCDF-ACF-IM-2021-3 (June 10, 2021), https://www.acf.hhs.gov/occ/policy-guidance/ccdf-acf-im-2021-03.
The majority of unspent federal relief funding is ARPA dollars — both the stabilization funds and supplemental CCDF funds. Policymakers have signaled the intent to use these one-time ARPA dollars for provider payment rates through the 2023-24 state fiscal year and for subsidized child care spaces through the 2024-25 state fiscal year.9Assembly Bill 131 (Committee on Budget, Chapter 116, Statutes of 2021), https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202120220AB131; and Senate Bill 129 (Skinner, Chapter 69, Statutes of 2021), https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202120220SB129. State leaders have also indicated that the remaining $326 million in CRRSA will fund additional subsidized child care spaces in 2022-23 state fiscal year.10Assembly Bill 131 (Committee on Budget). The use of these federal child care relief funds in 2022-23 and beyond is not final until the governor signs the budget agreement for the fiscal year.
The federal administration signaled urgency in utilizing child care relief funds for temporary measures to support cash-strapped families and under-paid subsidized providers who have faced enormous challenges during the pandemic. The CRRSA dollars and ARPA Stabilization funds must be spent by September 30, 2023.11US Department of Health and Human Services, Office of Child Care, Information Memorandum CCDF-ACF-IM-2021-1 and Information Memorandum CCDF-ACF-IM-2021-2. ARPA supplemental CCDF funds must be spent by September 30, 2024.12US Department of Health and Human Services, Office of Child Care, Information Memorandum CCDF-ACF-IM-2021-3.
4. Policymakers Have Expanded the Subsidized Child Care and Development System With One-Time Funds
Funding for the state’s subsidized child care and development system increased dramatically in the 2021-22 state fiscal year due in large part to one-time federal relief funds. In 2021-22, total funding for subsidized child care programs and the California State Preschool Program was $6.9 billion, but $2 billion of this total was one-time funding — 29% of overall support.
These one-time dollars are both federal relief funds and state funds, and have been used to support children, families, and providers in a number of ways, including payment rate increases and additional child care and preschool spaces for children. Policymakers plan to use remaining one-time federal relief funds to maintain these program expansions in coming years.13Assembly Bill 131 (Committee on Budget). Eventually, the state will have to commit significant, ongoing state dollars to avoid cuts to these vital supports for families and providers, but this will be difficult if policymakers face budget challenges.
Using one-time dollars to boost funding for the subsidized child care and development system is not unique to the pandemic. Since Governor Newsom took office, the state has increasingly relied on one-time dollars to support child care and preschool program expansions. Using one-time funding for ongoing programs and services undermines the fiscal foundation of the state’s subsidized child care and development system.
5. The 2021-22 Budget Builds on Investments from Prior Years but Still Falls Short of Equitable Funding Levels
Policymakers have incrementally invested in the state’s subsidized child care and development system to restore the devastating cuts made to child care programs and the California State Preschool Program as a result of the Great Recession — the state’s last economic crisis.14Kristin Schumacher, One-time Funding Boosts Dollars for Child Care and Preschool (California Budget & Policy Center, September 2018), https://calbudgetcenter.org/resources/one-time-funding-boosts-dollars-for-child-care-and-preschool/. State leaders continued this investment trend in the 2021-22 budget by utilizing one-time federal relief dollars and one-time and ongoing state funds to dramatically increase support for the state’s subsidized child care and development system.
Total funding for subsidized child care and the California State Preschool Program increased by more than one-third in 2021-22 (after adjusting for inflation), bringing overall funding to $6.9 billion. This boost in funding was driven by roughly $1.7 billion in one-time federal relief dollars included in the 2021-22 state budget. State policymakers also increased General Fund support for the subsidized child care and development system by 31% and special fund support by 59%. However, even with increased funding, resources still fall far short of the billions in additional support necessary to provide fair and just wages to providers and to increase access to early learning and care for families with low and moderate incomes in California.15California Health & Human Services Agency, Master Plan for Early Learning and Care: Making California for All Kids (December 2020), 95-107, https://www.chhs.ca.gov/home/master-plan-for-early-learning-and-care/.
Conclusion
The COVID-19 pandemic has underscored just how vital child care is to children, families, communities, and the economy. In response to the crisis, California policymakers have invested state and federal dollars into the state’s chronically underfunded subsidized child care and development system to mitigate some of the devastating impacts of the pandemic. While total funding for subsidized child care and the California State Preschool Program increased dramatically, the use of one-time funds to expand these programs threatens the fiscal foundation of the system and California families’ and providers’ ability to sustain child care.
As the state and nation emerges from the pandemic, policymakers have the opportunity to use one-time federal pandemic relief funds as a down payment for a fiscally sound subsidized child care and development system. To do so, both the state and federal government must provide significant, ongoing resources. This will ensure that children have a safe place to learn and grow, working parents have access to affordable child care, and providers and early educators are paid fair and just rates.
Families are eligible for subsidized child care if the child who would receive care is under the age of 13; the family establishes an appropriate eligibility status, such as by having an income below the limit set by the state; and the family demonstrates a need for care, such as parental employment. Families generally must meet the same income guidelines applicable to child care to qualify for the California State Preschool Program, which is funded solely with state dollars. State law, however, allows up to 10% of families in the state preschool program to have incomes up to 15% above the income eligibility limit, but only after all other eligible children have been enrolled. The California State Preschool Program is a part-day program offered for roughly nine months of the year. Some children receive “wraparound” services that provide subsidized child care for the remainder of the day and throughout the entire year. To be eligible for the full-day California State Preschool Program, families generally must meet the same eligibility guidelines that are applicable to subsidized child care.
2
Kristin Schumacher, Exploring the Unmet Need for Subsidized Child Care and Development Programs in California (California Budget & Policy Center, February 2019), https://calbudgetcenter.org/resources/exploring-the-unmet-need-for-subsidized-child-care-and-development-programs-in-california/; and Kristin Schumacher and Erik Saucedo, California’s Subsidized Child Care Providers Are Overdue for a Pay Raise (California Budget & Policy Center, April 2022), https://calbudgetcenter.org/resources/californias-subsidized-child-care-providers-are-overdue-for-pay-raise/
3
Federal policymakers also provided pandemic relief funding for Head Start, a federal early care and education program. These relief dollars flowed directly to Head Start providers across California and were not appropriated in the state budget. See US Department of Health and Human Services, Office of Head Start, Program Instruction ACF-PI-HS-21-03 (May 4, 2021), https://eclkc.ohs.acf.hhs.gov/policy/pi/acf-pi-hs-21-03.
4
California Budget & Policy Center, Federal Fiscal Relief and COVID-19: Implications for Californians (April 2020), https://calbudgetcenter.org/resources/covid19-federal-fiscal-relief-california/.
US Department of Health and Human Services, Office of Child Care, Information Memorandum CCDF-ACF-IM-2021-1 (April 14, 2021), https://www.acf.hhs.gov/occ/policy-guidance/ccdf-discretionary-funds-appropriated-crrsa-act-public-law-116-260-signed-law; US Department of Health and Human Services, Office of Child Care, Information Memorandum CCDF-ACF-IM-2021-2 (May 10, 2021), https://www.acf.hhs.gov/occ/policy-guidance/ccdf-acf-im-2021-02; and US Department of Health and Human Services, Office of Child Care, Information Memorandum CCDF-ACF-IM-2021-3 (June 10, 2021), https://www.acf.hhs.gov/occ/policy-guidance/ccdf-acf-im-2021-03.
US Department of Health and Human Services, Office of Child Care, Information Memorandum CCDF-ACF-IM-2021-1 and Information Memorandum CCDF-ACF-IM-2021-2.
12
US Department of Health and Human Services, Office of Child Care, Information Memorandum CCDF-ACF-IM-2021-3.
California Health & Human Services Agency, Master Plan for Early Learning and Care: Making California for All Kids (December 2020), 95-107, https://www.chhs.ca.gov/home/master-plan-for-early-learning-and-care/.
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All Californians, regardless of their county, race, age, or immigration status should have the support they need to make ends meet and pay for basic necessities. State refundable tax credits — the CalEITC and Young Child Tax Credit — are a key way the state provides economic support to Californians with low incomes. Racism, sexism, socioeconomic discrimination, and inequitable policies have kept millions of Californians in poverty. But research shows refundable tax credits help families and individuals avoid poverty and food hardship, have better health, and experience improved educational achievement and economic security.
California’s refundable credits are specifically targeted to families and individuals with the lowest incomes and available to people who file taxes without regard to immigration status. These credits reach people with earnings from $1 to $30,000 — equivalent to a full-time, minimum-wage salary. Proposals by the governor and Legislature would make children and families without income from employment also eligible to benefit from the state’s child tax credit.
Leaders Can Ensure Tax Credits Deliver the Support Californians with Low Incomes Need
Across all regions of California, millions of children, parents, and working adults are eligible to claim the CalEITC and the Young Child Tax Credit by filing their taxes. State and local leaders can do several things to make sure tax credits deliver the support these Californians need to meet their basic needs and thrive:
Boosting the size of these credits. For families and for adults without children this is an effective and efficient way to direct flexible resources to Californians who most need support to make ends meet.
Piggybacking on the CalEITC and Young Child Tax Credit when targeting one-time taxpayer rebates or relief payments. By automatically issuing payments to filers who claim state credits, support can be directed to Californians with low incomes while leveraging existing administrative infrastructure and minimizing red tape for people receiving support.
Expanding the availability of free tax preparation and filing services. This can help ensure that the full benefit of credits goes to families and individuals, and is not reduced by for-profit tax preparation fees.
How many children, parents, and adult individuals are eligible to benefit from California’s refundable tax credits?
Estimates for each of California’s regions and counties are included in this report.1Estimates are based on simulation of income taxes in public-use microdata from the US Census Bureau, American Community Survey, downloaded from IPUMS USA (University of Minnesota, www.ipums.org), using a tax simulation model developed for the California Poverty Measure, a joint project of the Stanford Center on Poverty & Inequality and the Public Policy Institute of California. Population and income data reflect 2018 and 2019, with CalEITC and Young Child Tax Credit eligibility based on 2019 credit parameters (adjusted for inflation as needed), adding filers who use Individual Taxpayer Identification Numbers (ITINs) to reflect the eligibility expansion implemented in 2020. Note that credit parameters for tax year 2021 are identical to tax year 2019 other than adjustment for inflation for CalEITC. Filers with no earnings who would become eligible for the Young Child Tax Credit under the governor’s and Legislature’s proposals are not included in these estimates. By understanding how many Californians in every county can benefit from these important credits, policymakers and community leaders can invest in proven policies that build on tax credits as tools to help Californians make ends meet and thrive in their communities.
Download the full report above to find out how many Californians are eligible for tax credits in your region.
This project has been made possible in part by a grant from Silicon Valley Community Foundation.
Estimates are based on simulation of income taxes in public-use microdata from the US Census Bureau, American Community Survey, downloaded from IPUMS USA (University of Minnesota, www.ipums.org), using a tax simulation model developed for the California Poverty Measure, a joint project of the Stanford Center on Poverty & Inequality and the Public Policy Institute of California. Population and income data reflect 2018 and 2019, with CalEITC and Young Child Tax Credit eligibility based on 2019 credit parameters (adjusted for inflation as needed), adding filers who use Individual Taxpayer Identification Numbers (ITINs) to reflect the eligibility expansion implemented in 2020. Note that credit parameters for tax year 2021 are identical to tax year 2019 other than adjustment for inflation for CalEITC. Filers with no earnings who would become eligible for the Young Child Tax Credit under the governor’s and Legislature’s proposals are not included in these estimates.
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California’s subsidized child care providers offer vital early learning and care for families struggling to make ends meet. Even as the COVID-19 pandemic continues, many providers and their staff have risked their health and safety to offer care for children of working parents. These early educators — primarily women and disproportionately women of color — deserve to be paid professional wages for essential work that helps children learn and grow while parents are working to support their families.
Despite providers’ critical role in nurturing children and assisting families, state leaders have failed to consistently and adequately increase provider payment rates in recent years. Child care providers are unable to offer early educators adequate professional wages, struggle to keep pace with the rising statewide minimum wage, and can’t afford the increasing price of food and supplies if policymakers don’t provide routine and sufficient updates to payment rates. Ultimately, California providers and families suffer when subsidized child care is limited in their communities because of policymakers’ lack of investment.
Providers and families suffer when subsidized child care is limited in their communities because of policymakers’ lack of investment.
How Are Subsidized Child Care Providers Paid in California?
Subsidized child care providers are paid in one of two ways in California: 1) by accepting vouchers from families or 2) by contracting directly with the state. Providers who accept vouchers are reimbursed by the state based on the Regional Market Rate (RMR) Survey. The RMR survey — administered every two to three years — provides “rate ceilings” based on provider setting and the age of the child for all 58 California counties. The rate ceiling is the highest payment a provider can receive from the state for the care of a child. Providers that contract directly with the state are paid with a statewide rate called the Standard Reimbursement Rate, which has typically been adjusted for various factors such as the age of the child or disability status.
Payment Rates for Voucher-Based Child Care Providers Are Not Keeping Pace Across 58 Counties
California experienced strong revenue growth over the past five years, yet state leaders updated voucher-based payment rates for child care providers just twice since the 2016-17 state fiscal year. During this same period, the state law requiring annual increases to the statewide minimum wage went into effect, raising the wage by 40% from 2017 to 2022.1Calculations are based on the minimum wage for employers with 25 employees or less. Senate Bill 3 (Leno, Chapter 4, Statutes of 2016), https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201520160SB3
The rate ceilings for child care providers across all 58 counties generally have not kept pace with the rising minimum wage even after the most recent increase to payment rates included in the 2021-22 state budget agreement. In the state’s two most populous counties — Los Angeles and San Diego — payment rates for licensed centers caring for preschool-age children increased by half as much as the statewide minimum wage. Providers in some counties, such as Santa Barbara County, saw miniscule rate increases of less than 1%. And in 27 counties, due to weaknesses in the rate-setting methodology, licensed centers have not received a single rate increase for care for preschool-age children since the 2016-17 state fiscal year.2Market rate surveys collect data on the tuition and fees that families can afford to pay for child care in a geographic area. These rates typically do not cover the true cost of care, as many providers supplement tuition and fees with other sources of revenue, such as grants or donations. See Bipartisan Policy Center, The Limitations of Using Market Rates for Setting Child Care Subsidy Rates (May 2020), 4-6, https://bipartisanpolicy.org/report/the-limitations-of-using-market-rates-for-setting-child-care-subsidy-rates/.
State Rate for Contract Providers Doesn’t Match Rising Child Care Business Costs
Similar to voucher-based payment rates, policymakers also have not consistently updated the Standard Reimbursement Rate each year so that contract providers keep pace with rising staff costs and the increasing price of food and supplies. From 2016-17 to 2021-22, the Standard Reimbursement Rate has increased by just 28.2%, falling short of the 40% increase in the state minimum wage.3During this period, policymakers also increased the Standard Reimbursement Rate adjustment factors for a number of higher-cost groups of children, such as infants or children with disabilities. Many of these adjustment factors were eliminated in the 2021-22 budget agreement as part of the transition to a single reimbursement rate system for subsidized child care providers. See Assembly Bill 1808 (Committee on Budget, Chapter 32, Statutes of 2018), https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180AB1808; and Assembly Bill 131 (Committee on Budget, Chapter 116, Statutes of 2021), https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202120220AB131.
Even though contract-based providers are required to meet more program standards than voucher-based providers do, the payment rate is lower than the Regional Market Rate ceiling in many counties, illustrating a key problem with the state’s bifurcated rate system. To correct for this, policymakers included a provision in the 2021-22 budget agreement to reimburse contract-based providers with either the Standard Reimbursement Rate or the rate for voucher-based providers, whichever is higher.4Assembly Bill 131 (Committee on Budget).
Subsidized Child Care Providers Urgently Need a Pay Raise
Already operating on thin financial margins, child care providers have struggled during the pandemic with a loss of income and increased costs due to reduced enrollment, temporary closures, and enhanced health and safety requirements.5Kristin Schumacher, California’s Economic Recovery Starts with Child Care (California Budget & Policy Center, February 2021), https://calbudgetcenter.org/resources/california-economic-recovery-starts-with-child-care/. Policymakers’ recent efforts to boost subsidized child care providers’ payment rates and to provide other one-time rate supplements are just the first step to fair and just payment rates. In addition to increasing payment rates, the 2021-22 budget agreement also required the governor’s administration and providers, parents, and other early childhood experts to begin work on a plan to replace the state’s bifurcated rate system with a unified, equitable system.6AB 131 (Committee on Budget).
But subsidized child care providers and the families they serve can’t wait. While a permanent solution is in the works, state leaders should provide another payment rate increase in the 2022-23 budget agreement to ensure child care providers can keep up with rising costs while continuing to offer invaluable care to children and families.
Market rate surveys collect data on the tuition and fees that families can afford to pay for child care in a geographic area. These rates typically do not cover the true cost of care, as many providers supplement tuition and fees with other sources of revenue, such as grants or donations. See Bipartisan Policy Center, The Limitations of Using Market Rates for Setting Child Care Subsidy Rates (May 2020), 4-6, https://bipartisanpolicy.org/report/the-limitations-of-using-market-rates-for-setting-child-care-subsidy-rates/.
3
During this period, policymakers also increased the Standard Reimbursement Rate adjustment factors for a number of higher-cost groups of children, such as infants or children with disabilities. Many of these adjustment factors were eliminated in the 2021-22 budget agreement as part of the transition to a single reimbursement rate system for subsidized child care providers. See Assembly Bill 1808 (Committee on Budget, Chapter 32, Statutes of 2018), https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180AB1808; and Assembly Bill 131 (Committee on Budget, Chapter 116, Statutes of 2021), https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202120220AB131.
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All California K-12 students deserve an engaging education that prepares them for college, career, and community life. However, many K-12 students are increasingly not enrolled and not attending schools. Students of color, students learning English, and students from families with low incomes have disproportionately experienced declines in enrollment and attendance. State policymakers should pursue policies that increase attendance rates and re-engage students who are not enrolled, many likely due to the health, economic, and learning challenges exacerbated by the COVID-19 pandemic.
California students of color, students learning English, and students from families with low incomes not enrolled or attending K-12 schools are losing critical access to curriculum.
While recent California student enrollment in K-12 public schools has fallen sharply overall, declines have been especially pronounced for socioeconomically disadvantaged students of color.1Socioeconomically disadvantaged students are either eligible for free or reduced priced meals or have parents or guardians who did not graduate high school. In 2021-22, enrollment for socioeconomically disadvantaged students fell by 3% from the prior year, following a drop of more than 3% between 2019-20 and 2020-21. Enrollment dropped for students in most racial and ethnic groups in 2021-22, but these drops were larger for most racial groups who were socioeconomically disadvantaged. These drops in enrollment were double the average statewide decline for Pacific Islander (6.4%) and Filipino (6.1%) students and nearly double for Black (5.8%) students.
Even for students enrolled in K-12 schools, many lost educational opportunities because they were chronically absent.2Students who are chronically absent are those who miss school for 10% of instructional days or more in a school year. Socioeconomically disadvantaged students disproportionately experience chronic absenteeism — with varied causes including limited transportation, adverse health conditions, and housing insecurity. The pandemic exacerbated these challenges causing chronic absenteeism to soar, especially for socioeconomically disadvantaged students of color and English learners. In 2020-21, nearly one-third of socioeconomically disadvantaged American Indian/Alaska Native (32.2%) and Black students (31.9%) were chronically absent, as were more than a quarter of Pacific Islander students (27.8%), and nearly one in five Latinx students (19.2%). The chronic absenteeism rate for socioeconomically disadvantaged English learners spiked to 18.8%, approaching the statewide average of 19.4%.
California students of color, students learning English, and students from families with low incomes not enrolled or attending K-12 schools are losing critical access to curriculum and social structures that schools, educators, and peers offer. While state policymakers weigh options to address the fiscal impacts on California school districts due to shifts in enrollment and attendance, they also hold responsibility for the educational and social well-being of students who have historically faced barriers to learning. To fulfill that responsibility, policymakers’ choices should prioritize the meaningful engagement of K-12 students and their families and help them rebuild educational opportunities.
Support for this reportwas provided by the Sobrato Family Foundation and the Stuart Foundation.
Socioeconomically disadvantaged students are either eligible for free or reduced priced meals or have parents or guardians who did not graduate high school.
2
Students who are chronically absent are those who miss school for 10% of instructional days or more in a school year.
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Executive Summary
California families want the ability to put food on the table, keep a roof over their heads, and help their children thrive in their classrooms and communities. For families who struggle to find good-paying jobs, face gender- and race-based discrimination, lack a high school degree, and experience mental illness or trauma, the California Work Opportunity and Responsibility to Kids (CalWORKs) program is critical. CalWORKs is California’s version of the federal Temporary Assistance for Needy Families (TANF) program and supports about 400,000 children throughout the state, providing their families with modest monthly cash grants while helping parents address barriers to employment and find work. Yet as this Issue Brief outlines, the federal program focuses on quickly pushing parents into paid employment over addressing longer-term barriers to work and resources needed to lead thriving lives. State and federal policymakers can change short-sighted, work-first approaches that undermine efforts to work with California families with low incomes and offer them the support they need.
State Policymakers Should Fully Commit to Helping CalWORKs Families Thrive
To continue to make progress toward making CalWORKs a program that truly serves families in crisis, policymakers must commit to helping parents address barriers and reject a short-sighted work-first approach that discourages critical counseling and education.
To achieve this goal, state legislators should:
Focus on providing holistic support to CalWORKs parents.
Direct the Department of Social Services to remove or revise the WPR penalty for counties.
Move away from work requirements.
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These work requirements force Californians to “earn”
public support and are based on racist and sexist beliefs
that people of color take advantage of public assistance
and that the unpaid caregiving that women traditionally
provide is not real work.
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Introduction
Californians need quality public health and schools, access to affordable housing and clean water, and safe roads and neighborhoods along with many more services to live and thrive – no matter one’s zip code. Accordingly, the state’s tax and revenue system must raise adequate revenue to cover the services provided by state and local governments and make ongoing investments to meet the needs of Californians. However, policy choices of the past and present shape whether revenues are equitably raised and who is contributing a fair share of their income to California’s revenue. State policymakers can make the tax and revenue system more equitable by strengthening taxation of Californians with high incomes and wealth while providing more support to Californians with low incomes and Californians of color who have been blocked from income- and wealth-building opportunities.
This 5 Facts explains main concepts associated with tax equity and illustrates how elements of California’s tax and revenue system further or impede the goals of economic and racial equity for households, communities, and the state.
1. Taxes Can Be Progressive, Proportional, or Regressive — Depending on How They Impact People Across Income Levels
A key aspect to tax equity is how a tax — or a tax system as a whole — impacts households across income levels. One way to measure this is by comparing effective tax rates —meaning the share of one’s income paid in a tax — of people in different income groups. A tax is considered progressive when households with higher incomes have higher effective tax rates than those with lower incomes. The opposite of a progressive tax is a regressive tax. With regressive taxes, people with lower incomes have higher effective tax rates than people with higher incomes. Finally, a tax is considered proportional when people at all income levels have the same effective rates. Progressive taxes are the most equitable taxes, since they ask the most from people who have the most ability to pay.
People with lower incomes must spend larger shares of their income just to meet their basic needs, leaving them with less ability to pay taxes. For example, almost 6 in 10 low-income California households spend more than half of their income on housing alone, compared to just 2% of high-income California households.1Aureo Mesquita and Sara Kimberlin, Staying Home During California’s Housing Affordability Crisis (California Budget & Policy Center, July 2020), https://calbudgetcenter.org/resources/staying-home-during-californias-housing-affordability-crisis/. Data are for 2018. “Low-income California household” is defined as a household with income below 200% of the federal poverty threshold — roughly $51,000 for a family of four in 2018 — and “high-income California household” is defined as a household with income of at least four times the federal poverty threshold — roughly $102,000 for a family of four in 2018. In other words, after covering the basics, Californians with lower incomes have much smaller portions of their total incomes available to pay taxes than higher-income Californians. It follows that a fair tax system should take a smaller fraction of the income of low-income households.
2. California’s Personal Income Tax Is Highly Progressive, Asking the Most from Those with the Highest Ability to Pay
Californians with higher incomes pay a larger percentage of their income in personal income taxes than people with lower incomes because higher portions of income are subject to higher tax rates.2California’s personal income tax rates range from 1% to 13.3%. The top rate for each tax bracket, or range of income, is only applied to the amount of income that exceeds the income threshold for that bracket. In other words, high-income people face the highest effective tax rates with regard to the personal income tax. Additionally, the state has two refundable tax credits, the California Earned Income Tax Credit (CalEITC) and the Young Child Tax Credit, that provide refunds to families with very low incomes, creating a negative effective tax rate for them. The personal income tax is the state’s largest revenue source.
The progressive structure of the personal income tax also improves racial equity, since Latinx and Black Californians have lower average incomes than white Californians due to racist policies and practices in employment, education, and every other facet of society.3Carl Davis, Marco Guzman, and Jessica Schieder, State Income Taxes and Racial Equity: Narrowing Racial Income and Wealth Gaps with State Personal Income Taxes (Institute on Taxation and Economic Policy, October 2021), 11, https://itep.sfo2.digitaloceanspaces.com/State-Income-Taxes-and-Racial-Equity_ITEP_October2021.pdf; Adriana Ramos-Yamamoto and Monica Davalos, Confronting Racism, Overcoming COVID-19, and Advancing Health Equity (California Budget and Policy Center, February 2021), https://calbudgetcenter.org/resources/confronting-racism-overcoming-covid19-advancing-health-equity/. As a result, the effective state personal income tax rate is lower on average for Latinx and Black families (3.6% and 4.0%, respectively) than for white families (5.0%).4Davis, Guzman, and Schieder, State Income Taxes and Racial Equity, 11-12. Tax agencies do not collect racial or ethnic information, so the Institution on Taxation & Economic Policy estimates effective tax rates by race/ethnicity by combining tax data and US Census Bureau American Community Survey data using a methodology explained here: https://itep.org/itep-tax-model/iteps-approach-to-modeling-taxes-by-race-and-ethnicity.
3. California’s Sales and Excise Taxes Are Regressive, Asking the Most from Those with the Least Ability to Pay
In contrast to the personal income tax, the sales and use tax is regressive. This is because people with lower incomes need to spend larger shares of their income to cover basic needs, so sales taxes take up larger shares of low-income households’ budgets. The sales and use tax is the state’s second-largest revenue source.
Excise taxes, which are taxes on specific goods including gasoline, alcohol, and tobacco, are also highly regressive. Like sales taxes, excise taxes hit people with lower incomes hardest since any money they spend on items subject to excises taxes will generally make up a larger share of their overall budgets compared to high-income people. In addition, since excise taxes are generally based on the volume of the purchase rather than the price, people at all income levels pay the same tax on a given amount of a product, whether they buy an economical brand or a more expensive brand.5Meg Wiehe et al., Who Pays: A Distributional Analysis of the Tax Systems in All Fifty States (Institute on Taxation and Economic Policy, October 2018), 19-20, https://itep.sfo2.digitaloceanspaces.com/whopays-ITEP-2018.pdf.
The 20% of California families with the lowest incomes pay 7.4% of their incomes in combined state and local sales and excise taxes, compared to 0.8% for the richest 1%. Again, because Black, Latinx, and many other Californians of color are more likely to have low incomes than white Californians, regressive taxes like sales and excise taxes exacerbate racial inequity.
4. California’s State and Local Tax System Could Be More Progressive
The overall impact of the state and local tax system on Californians is determined by the combination of the progressive personal income tax and regressive sales and excise taxes, as well as other taxes levied by the state and localities — most notably local property taxes and corporate income taxes. The combined impact is a state and local tax system that is regressive for people with lower incomes and progressive for people with very high incomes. The richest 1% of California tax filers pay the largest share of their income in state and local taxes (12.3%), but the 20% of filers with the lowest incomes pay the next highest share (11.4%). While the richest Californians pay a smaller portion of their income in sales, excise, and property taxes than any other group, it is made up for by the larger share of their income that goes to income taxes. Conversely, while the bottom 20% of Californians on average get money back from the personal income tax system via refundable tax credits, this is not enough to make up for paying larger shares of their income in sales, excise, and property taxes.
5. California’s Tax System Rewards Wealth but Doesn’t Tax Wealth
Wealth inequality is even more pronounced than income inequality, and racial wealth gaps are larger than racial income gaps. Many state tax policies contribute to wealth inequality and racial wealth gaps by providing substantial tax benefits to families who have assets like homes and retirement plans — such as the deductions for mortgage interest and property taxes, the partial tax exemption on the proceeds of home sales, and tax-privileged retirement accounts. Black, Latinx, and other people of color receive less of these tax benefits because — due to structural racism and discrimination — they are less likely to be homeowners, to be in jobs with access to employer-sponsored retirement plans, and to have the financial means to save or invest in assets.6Kayla Kitson, Promoting Racial Equity Through California’s Tax and Revenue Policies (California Budget & Policy Center, April 2021), 5, https://calbudgetcenter.org/resources/promoting-racial-equity-through-californias-tax-and-revenue-policies; Kayla Kitson, Tax Breaks: California’s $60 Billion Loss (California Budget & Policy Center, January 2020), 6-8, 10-11, https://calbudgetcenter.org/resources/tax-breaks-californias-60-billion-loss. At the same time, accumulated or inherited wealth is not taxed in California. Policymakers can eliminate or limit tax benefits that most advantage wealthy families and explore other options to better tax Californians who have amassed large amounts of wealth. The resulting revenues could then be directed to investments that help families who have been shut out from wealth-building opportunities achieve economic security and build wealth.
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California policymakers can make the tax and revenue system more equitable.
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Conclusion
There are many dimensions to ensuring that a tax system equitably generates the revenue needed for Californians to care for their families, build healthy communities, and contribute to a strong economy. Policymakers need to consider how any tax policy could have disparate effects on Californians by income, wealth, and race/ethnicity — as well as other factors not discussed in this fact sheet, such as gender, family structure, and income source.
The state’s current tax and revenue system is not fair for all Californians. People with the lowest incomes should not be paying larger shares of their incomes in state and local taxes than most other income groups, and the state’s tax policies should work to narrow racial wealth gaps, not widen them.
California policymakers can make the tax and revenue system more equitable. This includes ensuring that Californians with high incomes and wealth pay their fair share to support critical state services, providing further support for Californians with low incomes — such as by increasing and expanding refundable tax credits and making other tax credits refundable to benefit more low-income households — and eliminating or reforming tax benefits that primarily help wealthy Californians. Moving toward more robust taxation of Californians with higher income and wealth would also generate revenues that can be spent equitably to help more low-income households and Californians of color live and thrive, and expand opportunities to build wealth for themselves, their children, and their communities.
Aureo Mesquita and Sara Kimberlin, Staying Home During California’s Housing Affordability Crisis (California Budget & Policy Center, July 2020), https://calbudgetcenter.org/resources/staying-home-during-californias-housing-affordability-crisis/. Data are for 2018. “Low-income California household” is defined as a household with income below 200% of the federal poverty threshold — roughly $51,000 for a family of four in 2018 — and “high-income California household” is defined as a household with income of at least four times the federal poverty threshold — roughly $102,000 for a family of four in 2018.
2
California’s personal income tax rates range from 1% to 13.3%. The top rate for each tax bracket, or range of income, is only applied to the amount of income that exceeds the income threshold for that bracket.
Davis, Guzman, and Schieder, State Income Taxes and Racial Equity, 11-12. Tax agencies do not collect racial or ethnic information, so the Institution on Taxation & Economic Policy estimates effective tax rates by race/ethnicity by combining tax data and US Census Bureau American Community Survey data using a methodology explained here: https://itep.org/itep-tax-model/iteps-approach-to-modeling-taxes-by-race-and-ethnicity.
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