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Sacramento Bee Columnist Daniel Weintraub

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August 10, 2003

Maybe Gray can blame Arnold for state deficit

Arnold is releasing his two most recent tax returns today. They are for 2000 and 2001. The return for 2002 hasn’t been prepared yet.

I haven’t seen the returns, but I got a briefing from his investment adviser. He said the numbers show the following:

2000
Adjusted gross income: $31 million
Federal tax paid: $8.5 million
California tax: $2.6 million
Donated to charity: $750,000

2001
Adjusted gross income: $26 million
Federal taxes: $7.4 million
State taxes: $1.9 million
Donated to charity: $4.2 million

My first reaction is that this shows how Arnold, like most wealthy Californians, took a hit between 2000 and 2001 that left him not only with less income, but paying less tax to the state. It appears his taxes dropped by a greater percentage than his income, and I’m curious why. (Probably the donations to charity.) But the overall trend – on both his income and his taxes -- is certainly consistent with what we know about the roots of California’s budget crisis.

As I have reported in my columns, California between 2000 and 2001 had perhaps the greatest leveling of its distribution of income of any society ever. The state’s most affluent residents got clobbered, and the treasury got clobbered in turn.

I am not suggesting that you feel sorry for Arnold, or for others in his class. But remember this: in the tax year 2000, California had 44,000 people who earned $1 million or more. They earned 21 percent of the state’s income and paid 37 percent of the income taxes, $15 billion in all. The following year, 29,000 people earned more than $1 million. Their incomes represented 12 percent of the money earned in the state, and they accounted for 25 percent of the tax paid, or $8 billion. That $7 billion drop was virtually all the decline in state taxes, the very decline that led to the deficit, since the state kept spending as if the money would keep pouring into the treasury.

Arnold’s personal income drop between 2000 and 2001 cost the treasury $700,000. That’s about 15 school teachers, or 10 firefighters at top pay. In California, when the rich get richer, government programs do better. And when they get poorer, the public sector takes the hit.

For a more comprehensive discussion of this issue, you can download a column I wrote on the topic in January.

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