More On California Taxes


Aha. Somehow I forgot about another source of information of California taxes: the Institute on Taxation and Economic Policy  study on the distribution of tax burdens. It actually sheds considerable light on the whole business.

First things first: ITEP is more or less part of Citizens for Tax Justice, a definitely liberal think tank. However, while CTJ's ideology dictates their choice of topics, I've always found the work itself impeccable. This is in stark contrast to the folks at the  Tax Foundation , who through the 90s deliberately tried to confuse their audience. (Basically, they pretended that the surge in federal revenue during the late 90s - which mainly reflected huge capital gains in a bull market, and was not the result of increased tax rates - meant that ordinary families were facing higher taxes. Naughty, naughty.)

Anyway, the ITEP study estimates the state and local tax burden for each state and the nation as a whole. Specifically, it estimated tax burdens given 2002 tax rates, but using data on the 2000 distribution of income. So it doesn't reflect the effects of the collapse of the tech bubble. But what it says is interesting.

Here's the comparison:
Group Nation California
Bottom 20 % 11.4 11.3
Next 20 % 10.3 10.2
Middle 20% 9.6 9.2
Fourth 20% 8.8 8.7
Next 15% 7.7 8.1
Next 4% 6.5 7.6
Top 1% 5.2 7.2

Nationally, state and local taxes are highly regressive, and have become considerably more regressive over time. California's system is regressive, too, but not as much so as the national average. The result is that the typical California family pays less than the national average, but the well-off pay more.

So this is an alternative explanation of Ahnuld's remarks about the burden of taxes: he wasn't just mouthing right-wing cliches, he was reflecting what he sees. The kind of people he hangs out with do pay substantially higher taxes in California than they would if they lived in a red state. But the great majority of Californians aren't wealthy, and they also aren't highly taxed by national standards.

Now you could try to argue that California's "class warfare" - a system that is less regressive than the national average - drives away businesses and jobs. But as I've already pointed out, there's no evidence of that in the data.

Originally published on the Official Paul Krugman Site, 8.28.03