Taxes and Inequality in California: Who Pays a Bigger Share?

By Jim Miller

Last week was Tax Day and with it came the annual ritual of bemoaning our ever-rising taxes and complaining about the endless growth of big government.

Indeed just a few days after Tax Day, I gave a talk at a local college on the history of income inequality and workers’ struggles in which I made a comparison between the stark odds workers face today in the Fight for $15 with the similarly steep hill they faced 100 years ago before the rise of the American Labor Movement and the reforms that came with the New Deal.

As is usually the case, however, a few folks in the audience just could not get their heads around the idea that it was not all government’s fault.

Big government and big taxes, they argued, were the source of all obstacles for American workers. It didn’t matter how many times my colleague (who teaches economics) noted that taxes, overall, are at historic lows and that government spending, in real terms, is not astronomically higher, the incredulous audience members just stuck to the story they knew –taxes are getting higher every year. Everybody knows that!

Of course this is very much a mythical position whose power comes from years of ideological warfare waged by the right against taxation and the very idea of government. But before we get too superior about fact-averse Republicans, let me complicate the story by noting that the people in question here were self-identified as working class folks who had slaved for years to get what they had and their stories were indeed compelling despite the fact that, on the whole, they were wrong about taxes.

So why the resistance on the part of working class people to a talk arguing that we needed to afflict the comfortable by making them compensate workers better and pay more taxes? Perhaps the reason why the right has been so successful in convincing folks like these that they are overtaxed is because, compared to their more wealthy fellow citizens, they are.

Indeed, last week’s report by the California Budget Project, “Who Pays Taxes in California,” documents the fact that, “Contrary to the oft-repeated claim that high- income Californians pay an unfair amount of taxes, it is actually California’s low-income families who pay the largest share of their incomes in state and local taxes.”

More specifically the report notes that the bottom fifth of our state’s families “with an annual income of $13,900” pay 10.5% of their income in state and local taxes while the top 1% of families with “an annual income of $20 million” pay 8.7% of their income in the same taxes even after Proposition 30’s temporary tax increases on top earners. Hence, California’s tax system is still “mildly regressive.”

And our regressive tax system is continuing to contribute to income inequality. As the report observes:

The fact that lower-earning families in California pay a larger share of their incomes in state and local taxes exacerbates the widening income inequality that the state has experienced over the past generation.

Over the last two decades, only high-income households on average have experienced gains in their incomes. Between 1987 and 2012, the inflation-adjusted average income of the top 1 percent of Californians grew by 125.8 percent. In that same period, the bottom 80 percent of Californians on average saw declines in their adjusted income, with low-income households seeing the largest decline.

This disparity in income growth has led to an increasing concentration of income at the top of the distribution. Between 1987 and 2012, the share of income held by the top 1 percent of Californians nearly doubled, jumping from 13.0 percent to 24.9 percent.

The solution to this problem according to the California Budget Project, is not to, as my friends at the college wanted, cut all taxes and get the government out of the way, but to implement tax policy options that improve economic insecurity such as a state level earned income tax credit and better targeting of existing tax credits to low income households.

Tax policies like these that would help ease the economic burden of working people combined with measures that do more to make the wealthy and corporations pay their fair share would be a good first step toward economic justice in our state. Maybe then tax wary working folks like the ones I spoke with last week would begin to feel more like the government was on their side.