0902 Californias Tax System

8/8/2019 0902 Californias Tax System

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1107 9th Street,

Suite 310

Sacramento,

California 95814

(916) 444-0500

www.cbp.org

[email protected] THE CALIFORNIA BUDGET PROJECT

February 2009

Californias Tax System


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1

Corporation Tax

10.7%

Cigarette Tax

0.1%

Alcohol Tax

1.0%

Insurance Tax

1.8%

Other Revenues2.7%

Sales and Use Tax

34.6%

Personal Income Tax

49.1%

Projected 2009-10 General Fund Revenues = $97.7 Billion

The Personal Income Tax Provides Nearly Half of 2009-10 General Fund Revenues

Note: Includes loans and transfers.

Assumes that all of the Governor's proposed 2008-09

and 2009-10 revenue changes are enacted.

Source: Legislative Analyst's Office


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2

10.7%

49.1%

34.6%

5.5%8.7%

15.4%

42.1%

34.6% 28.8%

37.3%

20.4%

12.6%

0%

10%

20%

30%

40%

50%

60%

1977

-78

1979

-80

1981

-82

1983

-84

1985

-86

1987

-88

1989

-90

1991

-92

1993

-94

1995

-96

1997

-98

1999

-00

2001

-02

2003

-04

2005

-06

2007

-08

2009

-10*

Percenta

ge

ofGeneralFundR

evenues

The Personal Income Tax Provides the Largest Share of General Fund Revenues

Personal

Income Tax

Sales and

Use Tax

Corporation

Tax

Other

Revenues

* 2008-09 estimated and 2009-10 projected.

Note: Excludes loans and transfers. Assumes that all of the Governor's

proposed 2008-09 and 2009-10 revenue changes are enacted.

Source: Legislative Analyst's Office

Reflects deficit bond proceeds


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3

Personal Consumption Spending Fell in the Third Quarter of 2008 by the Largest Percentage Since 1980

-3.8%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008

Quarter

AnnualR

ateofChangeinInfla

tion-AdjustedandSeasonallyAdjusted

PersonalConsumptionExpenditures

Source: US Bureau of Economic Analysis


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4

California's Third Quarter 2008 Decline in Taxable Sales Was the Largest Since 1991

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

Q1199

1

Q3199

1

Q1199

2

Q3199

2

Q1199

3

Q3199

3

Q1199

4

Q3199

4

Q1199

5

Q3199

5

Q1199

6

Q3199

6

Q1199

7

Q3199

7

Q1199

8

Q3199

8

Q1199

9

Q3199

9

Q1200

0

Q3200

0

Q1200

1

Q3200

1

Q1200

2

Q3200

2

Q1200

3

Q3200

3

Q1200

4

Q3200

4

Q1200

5

Q3200

5

Q1200

6

Q3200

6

Q1200

7

Q3200

7

Q1200

8

Q3200

8

PercentChangeinTaxableSales

FromS

ameQ

uarterofPreviousYea

r

Note: 2008 data are preliminary.Source Departmnet of Finance


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5

California's Median Home Price Has Plunged Since Peaking in Spring 2007

$249,000$173,000

$484,000

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$500,000

$550,000

Dec-88

Dec-89

Dec-90

Dec-91

Dec-92

Dec-93

Dec-94

Dec-95

Dec-96

Dec-97

Dec-98

Dec-99

Dec-00

Dec-01

Dec-02

Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

MonthlyMedianP

riceforHomesSoldinCalifornia

Note: Includes new and resale condominiums and single-family detached homes.

Source: MDA DataQuick


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6

Californias Tax System Contributes to the Budget Gap Tax policies and economic trends contribute to the states budget

problems:

Corporate income taxes have declined over time as a share of General Fundrevenues and as a share of corporate profits. If corporations had paid thesame share of their profits in corporate taxes in 2006 as they did in 1981,

corporate tax collections would have been $8.4 billion higher.

The yield of the states sales tax has declined over time, reflecting the shiftin economic activity from goods to services and the rise of Internet and mail-

order sales that escape taxation. If taxable purchases accounted for the

same share of personal income in 2007-08 as they did in 1966-67, the state

would have collected an additional $16.4 billion in sales tax revenues.

The phase-out of the federal estate tax will cost the state over $1.1 billion in

2009-10. Current law reinstates the tax in 2011; however, most experts

believe that the state portion of the tax will not be restored.


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5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

CorporateTaxesasaPercentageofInco

mefor

Corporations

ReportingNetIncome

Tax rate reduced

from 9.6% to 9.3%

Tax rate increased from

5.5% to 7.0%

Tax rate

increased

from 7.0% to

7.6% to 8.3%

to 9.0%

Tax rate increasedfrom 9.0% to 9.6%

The Share of Corporate Income Paid in Taxes Has Fallen by Nearly Half Since 1981

Source: Franchise Tax Board

Tax rate reduced

from 9.3% to

8.84%


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Growth in Corporate Income Far Outstripped That of

Adjusted Gross Income During the Economic Recovery

578.1%

39.7%

0%

100%

200%

300%

400%

500%

600%

700%

Total State Net Income of Corporations Total Adjusted Gross Income of Personal Income Taxpayers

PercentChange,

2001to2007

Note: All data are for California. Corporate and adjusted gross income reflect income reported for tax purposes.Source: Franchise Tax Board


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9

Recent Growth in Corporate Profits Has Outpaced Growth in Corporate Tax Payments

1018.7%

218.5%

557.0%

69.3%

0%

200%

400%

600%

800%

1000%

1200%

California Net Income:

Apportioning Corporations

California Net Income:

Nonapportioning Corporations

Total State Net Income of

Corporations

State Corporate Tax Liability

PercentChange,

2001to2005



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Sales Tax Collections Have Declined as a Share of Personal Income

0.52%

0.34%

0.30%

0.35%

0.40%

0.45%

0.50%

0.55%

0.60%

1960

-61

1962

-63

1964

-65

1966

-67

1968

-69

1970

-71

1972

-73

1974

-75

1976

-77

1978

-79

1980

-81

1982

-83

1984

-85

1986

-87

1988

-89

1990

-91

1992

-93

1994

-95

1996

-97

1998

-99

2000

-01

2002

-03

2004

-05

2006

-07

RevenueFro

ma

1PercentSalesTaxRate

asaPerc

entageofPersonalIncome

Source: Board of Equalization, Department of Finance,Legislative Analyst's Office, and US Bureau of Economic Analysis


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11

Tax Cuts Enacted Since 1993 Will Cost $11.7 Billion in 2008-092008-09 Drop Reflects Suspension of Net Operating Loss Deductions

$0.7$1.0

$1.9 $2.1

$3.9

$5.3

$7.2$7.8

$8.9

$11.7

$12.6

$11.3$11.9

$1.3

$7.8

$10.4

$0

$2

$4

$6

$8

$10

$12

$14

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08*

2008

-09*

Annua

lCostofTaxReductio

nsEnactedSince199

3(DollarsinBillions)

*2007-08 and 2008-09 estimated.

Source: Assembly Revenue and Taxation Committee, Board of Equalization,Department of Finance, Franchise Tax Board, and Legislative Analyst's Office


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2008 Tax Deal Will Lose More Than $3 Billion Over Eight YearsLosses Will Continue Permanently

$1,545

$815

($525)

($975)($895)

($1,000) ($985) ($985)

($1,500)

($1,000)

($500)

$0

$500

$1,000

$1,500

$2,000

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Net Cost of Net Operating Loss and Business Tax Credit Provisions in the 2008 Budget Agreement

Dolla

rsinMillions



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Personal Income Tax Posts the Highest Average Annual Growth Rate Over Time

10.8%

8.8%

7.8%

6.9%

4.6%4.3%

-1.8%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

Personal Income

Tax

Corporate Income

Tax

Insurance Gross

Premiums Tax

Sales Tax Per

1 Percent Rate

Motor Vehicle Fuel

Taxes

Alcohol Taxes Tobacco Tax Per

$0.10 Rate

AverageAnnualPercentChange,

1970-71

to2008-09

If impact of 1991 alcohol

tax increase is excluded,average annual percent

change would be 0.4%

Note: 2008-09 revenues estimated.Source: CBP analysis of Legislative Analyst's Office data


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The Gains of High-Income Taxpayers Far Outpaced Those of Other Taxpayers, 1995 to 2006

10.8% 9.5% 8.5% 9.0%

44.9%

57.4%

108.4%

0%

20%

40%

60%

80%

100%

120%

Bottom Fifth Second Fifth Middle Fifth Fourth Fifth Top Fifth Top 10 Percent Top 1 Percent

Income Category

PercentChangeintheAverageAdjustedGrossIncomeof

PersonalIncomeTaxpa

yers,

1995to2006(2

006Dollars)



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The Share of Total Adjusted Gross Income From Capital Gains Nearly Doubled Between 1988 and 2006

11.6%

6.0%

26.5%

16.7%

0%

5%

10%

15%

20%

25%

30%

35%

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

CapitalGainsasaPercentageofAdjustedGrossIncome

All Taxpayers Top 5 Percent of Taxpayers



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Lowest-Income Households Pay the Largest Share of Their Income in State and Local Taxes

11.7%

10.5%

9.5%8.7%

8.0% 8.0%

7.1%

0%

2%

4%

6%

8%

10%

12%

14%

Bottom Fifth Second Fifth Middle Fifth Fourth Fifth Next 15 Percent Next 4 Percent Top 1 Percent

2

007TaxesasaPercentageof2004House

holdIncome

Note: Includes offset for federal deductibility of state taxes.Source: Institute on Taxation and Economic Policy


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California Taxes in 2007

As Shares of Family Income for All Taxpayers, 2004 Income Levels

Income Top 20%

Group Bottom Fifth Second Fifth Middle Fifth Fourth Fifth ext 15 PercenNext 4 Percent Top 1 Percent

Average Income in Group $11,100 $23,800 $38,000 $62,300 $113,500 $260,000 $1,587,200Income Less than $18,000 $30,000 $48,000 $81,000 $170,000 $430,000

Range $18,000 $30,000 $48,000 $81,000 $170,000 $430,000 or more

Sales, excise & gross receipts taxes 8.4% 7.6% 6.1% 4.7% 3.3% 1.9% 0.8%

Property taxes 3.1% 2.4% 2.4% 2.4% 2.4% 2.0% 1.0%

Property taxes on families 3.0% 2.4% 2.3% 2.3% 2.3% 1.7% 0.5%

Business property taxes 0.1% 0.1% 0.1% 0.1% 0.2% 0.2% 0.4%

Income taxes 0.1% 0.5% 1.3% 2.1% 3.5% 5.3% 7.6%

Personal income tax 0.0% 0.5% 1.2% 1.9% 3.3% 5.0% 7.1%

Corporate income tax 0.1% 0.1% 0.1% 0.2% 0.2% 0.3% 0.6%

Total Before Federal Offset 11.7% 10.6% 9.7% 9.2% 9.2% 9.2% 9.4%

Federal Itemized Deduction Offset 0.0% 0.1% 0.2% 0.6% 1.2% 1.2% 2.3%Net After Federal Offset 11.7% 10.5% 9.5% 8.7% 8.0% 8.0% 7.1%

Source: Institute on Taxation and Economic Policy


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California Rank California US

Total State and Local Own Source (2005-06) 17 16.96% 16.29%

Total State and Local Taxes (2005-06) 13 11.73% 11.23%

State Taxes (2006-07) 14 7.76% 6.65%

Local Taxes (2005-06) 32 3.76% 4.52%

State and Local General Sales Taxes (2005-06) 16 2.89% 2.65%

State and Local Property Tax (2005-06) 36 2.67% 3.37%

State General Sales Tax (2006-07) 23 2.21% 2.10%

State Motor Fuels Taxes (2006-07) 45 0.23% 0.32%

State Tobacco Tax (2006-07) 44 0.07% 0.14%

State Alcoholic Beverage Sales Taxes (2006-07) 39 0.02% 0.05%

State Individual Income Tax (2006-07) 4 3.61% 2.36%

State Corporate Income Tax (2006-07) 6 0.75% 0.47%

Source: US Bureau of Economic Analysis and US Census Bureau

How Does California Compare?Revenues as a Percentage of Personal Income


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$0.25$0.30 $0.31

$0.38

$0.49

$1.03

$1.28

$1.38

$1.59$1.63

$1.73

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

$1.80

$2.00

Enact

Accelerated

Depreciation

Cut Corporate

Tax Rate

Make

Permanent

Bush Income-

Tax Cuts

Make

Permanent

Dividend &

Capital Gains

Tax Cuts

Extend

Alternative

Minimum Tax

Patch

Provide

Across-the-

Board Tax Cut

Provide a

Payroll Tax

Holiday

Provide Federal

Aid to State

Governments

Increase

Infrastructure

Spending

Extend

Unemployment

Insurance

Benefits

Temporarily

Increase Food

Stamp Benefits

AnnualChangeinInflation-A

djustedGrossDomes

ticProductforEach

DollarReductioninFederalTa

xRevenueorIncreas

einFederalSpending

Source: Moody's Economy.com

Federal Spending on Unemployment Insurance and Food Stamp Benefits Has the Biggest Bang for the Buck


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California Is the Only State To Require a Supermajority Vote To Pass Both a Budget and Any State Tax Increase

Supermajority vote required to pass

a budget and raise any state taxes

Supermajority vote only required to

raise any state taxes

Supermajority vote only required to

pass a budget

Majority vote required to pass a

budget and raise most or all

state taxes

Note: Arkansas, Florida, and Michigan require a supermajority vote for certain taxes.

Source: National Conference of State Legislatures

Documents

0902 Californias Tax System