The political kvetching over California taxes mimics the famous porridge passage in “Goldilocks and the Three Bears.”
Some Californians – those on the right – believe taxes are too high. Others to the left believe they are too low. The rest, quantity unknown, believe they are just right.
It’s not that simple, of course, because reactions to taxes also depend on what kind of taxes and, most importantly, who’s paying them.
Over the next year, we are likely to hear a lot of debate about taxes. Not only are Gov. Jerry Brown and the Legislature noodling over new taxes for highway repairs and medical care, but tax proposals are vying for places on the 2016 ballot, including extensions of the big hikes that voters temporarily approved in 2012 and boosts in taxes on cigarettes and perhaps marijuana.
Given that politicians and voters will likely decide what’s “just right,” it’s time for a primer on Golden State taxes:
California is a high-tax state – relative not only to what’s happening elsewhere but to our own economy. But how high is not easy to figure out because we not only pay a lot of taxes that are obvious, such as those on income, retail sales and automotive fuel, but many that are virtually hidden.
Nor is there any central repository of data on taxes, because they are levied by thousands of state and local government entities and often commingled with fees for particular services.
The difference between a tax and a fee can be difficult to discern because the former often masquerades as the latter. The $2.3 billion “vehicle license fee,” for example, is actually a property tax on cars and trucks, based on their value.
For purposes of this treatise, any “fee” that is extracted involuntarily and not tied to a specific service for the payer is considered a tax. So the vehicle license fee is a tax, but college tuition or entrance fees to a state park are not.
There are several ways to measure tax burden, including per capita. But the fairest and most accurate way is to include state and local taxes and compare them to personal income. It automatically adjusts for wide variances across the nation in income and in how taxes and services are divvied up between state and local governments.
The Tax Foundation uses that method in its annual comparisons of tax burden. In its most recent ranking, California’s state-local tax burden was the nation’s fourth highest among the states at 11.4 percent of personal income.
But its calculation uses data that are 4 years old and doesn’t include some of the more obscure taxes and taxlike fees levied by state and local governments.
My up-to-date compilation from multiple state and local government sources reveals that Californians are shelling out almost exactly $250 billion a year in taxes, a little less than $150 billion for the state and a little more than $100 billion for thousands of local governments.
That includes $78 billion in personal income taxes, $55 billion in property taxes, and $54 billion in state and local sales taxes. Other biggies include $10.3 billion in corporate income taxes, $6.5 billion in fuel taxes, $5.7 billion in unemployment insurance payroll taxes paid by employers, $5.4 billion in disability insurance taxes levied on workers, and $4.3 billion in truck weight fees and other vehicular levies.
Some taxes are quite obscure, such as the $1.5 billion the Public Utilities Commission siphons from utility ratepayers to support its regulatory operations. And some extractions defy easy description, such as the $2 billion-plus in cap-and-trade fees on carbon dioxide emissions.
Whether they are taxes or fees is being litigated. The state says they are fees, but business groups say they are taxes. If the latter contention prevails, they would require two-thirds legislative votes, rather than imposition by the Air Resources Board on its own.
At $250 billion, California taxes average about $6,400 a year for each of the state’s 39 million residents. The total is 12.5 percent of the currently estimated personal income of $2 trillion, more than a full percentage point higher than the 2011-vintage Tax Foundation calculation.
At that level, it may mean that Californians are carrying the nation’s highest overall tax burden, depending on what’s been happening lately in other high-tax states such as New York and Massachusetts. Suffice to say, we’re at least very near the top.
Our income and sales taxes are particularly high, vis-à-vis other states, and our “sin taxes” on cigarettes and liquor are relatively low.
Despite Proposition 13, the iconic 1978 measure that puts a tight limit on property tax rates, our property tax payments fall somewhere in the upper-middle range of states, thanks to property values that are markedly higher than those of other states.
As a percentage of property values, our property taxes are in the lower range – 34th highest, according to the Tax Foundation – but on a per-capita basis, 19th highest.
Averages aside, who’s paying? That’s an equally difficult question to answer.
Some are obvious. Smokers and chewers pay the $800 million in tobacco taxes, drinkers pay the $400 million in alcoholic beverage taxes, motorists pay auto fees and fuel taxes, and almost everyone pays sales taxes.
Those in the top income brackets, a tiny portion of the overall population, pay about half of state income taxes, which can be a problem. Their incomes, particularly from investments, vary widely from year to year, creating much volatility in the state’s revenue stream.
Proportionately, however, the wealthy don’t generate much sales tax revenue. It and other “excise taxes,” as they are dubbed, are considered “regressive,” meaning they hit those on the lower rungs of the economic ladder harder in relation to their incomes.
The left-leaning California Budget and Policy Center contends that when property taxes indirectly paid by renters, sales taxes and some other levies are included, “low-income families pay the largest share of their incomes in state and local taxes.”
There’s a long-running debate over whether Proposition 13 has resulted in a dramatic shift of property tax burden from commercial property to residential.
Unions and others on the left contend it has, because commercial property changes hands less frequently than homes and commercial property owners can structure property transfers to avoid revaluation for tax purposes. They have been pushing a “split roll” that would retain Proposition 13’s limits for homes and rental property but allow more frequent re-evaluations of commercial property, potentially raising as much as $9 billion in additional property taxes for schools and local governments.
Business groups deny the shift, saying when apartment houses and other residential rentals are counted as commercial property, its tax burden has increased vis-à-vis owner-occupied homes.
Californians’ attitudes about taxation can be summed up in a little rhyme: “Don’t tax you, don’t tax me. Tax the fellow behind the tree.” In other words, as numerous polls have shown, we tend to like taxes that are paid by someone else and dislike those we shell out ourselves.
However, as Benjamin Franklin observed much earlier: In this world nothing is certain but death and taxes.
That certainty applies, as well, to the perpetual debate over who should pay them and how much.