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Monday, April 30, 2012

Who Pays Taxes in California?

In April 2012, the California Budget Project released a report - Who Pays Taxes In California? It is a reminder that while we sometimes here people say that low-income individuals do not pay taxes, that is not true.  In fact, their data - likely obtained from the US Census Bureau on what percentage of one's income is used to pay state and local taxes, show that the percentage is larger for lower-income taxpayers than for higher income taxpayers. This is true even though higher income pay more income taxes. But, sales tax and excise taxes paid directly as well as the share of other taxes paid in products and services tends to represent a greater portion of a lower income individual's income.

Per the CBP report, the average percent of income used by the bottom 20% of individuals to pay state and local taxes, based on income is 10.2% while it is 7.4% for the top 1% of income generators. That is, if income is represented by a pie, the slice lower income individuals have that is labeled state and local taxes is larger than that pie slice for higher income individuals. That means that the remaining slice of pie to pay federal taxes and living expenses and anything for savings is smaller than it is for higher income individuals.

A similar misperception about how much of one's income is paid in taxes happens with federal taxes too. People sometimes forget that workers are paying 15.3% payroll taxes in addition to a variety of excise taxes, in addition to income taxes.

All of this should be considered in evaluating tax reform at the federal and state levels. We cannot usually just look at a single tax, but need to consider the entire mix.

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