Dan Walters

Dan Walters: Are California’s taxes too high or too low?

Huong Nguyen and other workers at the State Franchise Tax Board receive incoming tax returns in 2006. The state takes in about $250 billion in taxes every year.
Huong Nguyen and other workers at the State Franchise Tax Board receive incoming tax returns in 2006. The state takes in about $250 billion in taxes every year. Sacramento Bee file

California’s state and local governments hit us with about $250 billion in taxes every year, $6,000-plus per Californian.

A new report from the Tax Foundation, based on 2012 data, puts Californians’ tax burden at 11 percent of personal income, the fairest way to calculate and compare.

Whether that burden is too high, too low or about right is a matter of perpetual debate in political, media and academic circles.

It was the sixth-highest level of any state in 2012, but it had dropped from fourth in the 2011 rankings as the percentage also declined from 11.5 percent. It’s also consistent with the state’s level of taxation over the last several decades, according to the databank maintained by the Tax Foundation.

Just before the passage of Proposition 13, California’s iconic property tax limit, in 1978, state and local taxation was 12.2 percent of personal income, the nation’s fourth highest.

With property taxes reduced and then limited, California dropped to under 11 percent and its burden has varied only marginally in the nearly 40 years since, ranging from a low of 10.5 percent in the early years of the last decade to as high as 11.7 percent in 2010.

Parenthetically, were California still taxing at the 12.2 percent pre-Proposition 13 level, it would mean about $15 billion more in state and local revenue each year and put California in a tie with New Jersey for No. 3 behind New York’s 12.7 percent and Connecticut’s 12.6 percent.

These numbers frame what is likely to be fierce debate this year over California taxes, centered on a November ballot measure to extend the temporary surtaxes on high-income Californians that voters adopted in 2012.

Were that measure to be passed, its impact would be about $8 billion a year, or less than a half-percent of the $2.2 trillion in personal incomes that Californians are expected to receive this year.

Placed in that context, therefore, the pending tax measure is fairly small potatoes, even though it’s considered to be very important by the public employee unions that will attempt to persuade Californians to pass it.

By happenstance, the Tax Foundation report coincided with another from the California Schools Boards Association in support of a lawsuit by it and other school groups, seeking more state money. It declared that California needs to spend as much as $42 billion more each year on K-12 schools to prepare the state’s 6 million students for higher education and jobs.

The CSBA didn’t exactly say that taxes should be raised by that much to elevate per-pupil school spending into the upper ranks of the states – alongside New Jersey, New York, Connecticut and other high-taxing states. But that was clearly its implication.

A $42 billion tax increase would push Californians’ burden to about 13.5 percent of personal income, well over what it was before Proposition 13 passed and the highest of any state in the last four decades.

How high is too high? It’s a good question.

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