Toward a Fair and Adequate Revenue System: Emerging Tax Proposals in CA POLICY INSIGHTS 2018 SACRAMENTO, CA MARCH 22, 2018 calbudgetcenter.org
What does the federal GOP tax bill mean for California? | 2
The recently enacted federal tax bill mainly benefits corporations and high-income households. President Trump signed the tax bill in December 2017. Many of its provisions – mainly affecting taxes paid on personal income – expire after 2025. | 3
The Tax Bill Primarily Benefits Corporations and High-Income Households • The federal tax bill delivers most of its benefits to the already well-off in a number of ways. For example, the bill: – Permanently cuts the top corporate income tax rate from 35% to 21%. – Creates a 20% deduction, through 2025, for income from “pass-through” businesses. These include law firms and hedge funds. • The average taxpayer in the bottom 60% will initially see a relatively small tax cut , but will later experience a tax increase due to the expiration of most of the bill’s provisions in 2025, according to the Institute on Taxation and Economic Policy (ITEP). | 4
In California, the share of corporate income paid in state taxes has been falling for decades. Corporate net income rose from $24 billion in 1981 to $203 billion in 2015. Yet, over this same period, the share of this income paid in state corporation taxes fell from nearly 10% to 4.4%. | 5
The Share of Corporate Income Paid in State Taxes Fell By More Than Half Between 1980 and 2015 Corporate Taxes as a Percentage of Income for Corporations Reporting Net Income Tax rate increased 11% to 9.6% (1980) Tax rate reduced 10 to 9.3% (1987) 9 8 Tax rate reduced to 8.84% (1997) 7 6 5 4 3 2 1 0 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 | 6 Source: Franchise Tax Board
What are the goals that we seek to achieve with our tax system and what does California’s tax system look like today? | 7
What Should a Good Tax System Do? Adequacy: Provide an adequate level of revenues on a • timely basis. Fairness: Distribute the cost of paying for public services • fairly. Growth: Promote economic growth and efficiency and • keep pace with sources of economic growth Administrative ease: Be easily administered; and, • Accountability: Ensure accountability and transparency. • | 8
The Personal Income Tax Is Projected to Account for Two-Thirds of California’s General Fund Revenues Projected 2018-19 General Fund Revenues = $134.8 Billion Other 2.9%* Corporate Income Tax 8.3% Sales and Use Tax 19.4% Personal Income Tax 69.4% Note: Reflects total projected General Fund revenues before a $5.1 billion transfer to the state’s rainy day fund, $1.5 billion of which is required by Proposition 2 (2014). * Includes Highway Users Taxes, Insurance Tax, Alcoholic Beverage Taxes and Fees, Cigarette | 9 Tax, Motor Vehicle Fees, and other various additional sources of revenue. Source: Department of Finance
Property taxes are an important source of local revenues. For example, property taxes comprise roughly 20% of total revenues received by counties. | 10
Property Taxes Comprise Roughly One-Fifth of Total County Revenues, 2015-16 Other** 9.7% Charges for Current Services 8.8% State Funds 31.4% Enterprise Revenues* 14.8% Federal Funds Property Taxes 15.7% 19.5% * Reflects revenues associated with business-type activities, such as airports and hospitals. ** Reflects a range of smaller revenue sources, including other taxes, fines, licenses, and permits. Note: Excludes the City and County of San Francisco. Percentages do not sum to 100 due to rounding. | 11 Source: California State Controller’s Office
Local governments’ ability to boost revenues is severely constrained by state rules. As a result, it’s difficult for local jurisdictions to raise taxes in order to enhance or expand services. | 12
Locals Can Increase the Property Tax Rate Only to Fund Voter-Approved Debt • Proposition 13 (1978) limits the countywide property tax rate to 1% of a property’s assessed value. Revenues raised by this rate are allocated to jurisdictions within the county. • Local governments can boost the property tax rate only to pay for voter-approved debt (generally infrastructure bonds). – The property tax rate cannot be increased to raise revenues for local services. • Property tax rate increases for certain school facility bonds need approval by 55% of local voters. Increases for other types of infrastructure bonds need approval by two-thirds of local voters. | 13
Moreover, when local tax increases are approved, they often are regressive, meaning they affect lower-income households more than others. Examples of regressive taxes include the sales tax and taxes on parcels of property. | 14
How is California faring, economically and fiscally? | 15
California’s Low- and Midwage Workers Have Seen Only Modest Gains Since 1979 Percent Change in Inflation-Adjusted Hourly Wages for Workers Ages 18-64 50% High-Wage +44.2% (90th Percentile) 40 Midwage (50th Percentile) 30 Low-Wage (10th Percentile) 20 10 +6.5% +3.4% 0 -10 -20 ‘79 ‘81 ‘83 ‘85 ‘87 ‘89 ‘91 ‘93 ‘95 ‘97 ‘99 ‘01 ‘03 ‘05 ‘07 ‘09 ‘11 ‘13 ‘15 ‘17 Note: Figures reflect 2017 dollars. | 16 Source: Economic Policy Institute analysis of US Census Bureau, Current Population Survey data
Due to Higher Revenues, 2018-19 Spending Per Student Would Be More Than $3,400 Above 2011-12 K-12 Proposition 98 Spending Per Pupil, Inflation-Adjusted Prop. 30 passed $11,403 in Nov. 2012 $10,012 $9,730 $7,998 * 2017-18 estimated and 2018-19 proposed. Note: Figures reflect 2018-19 dollars and exclude spending for adult education, preschool, and child care. Prop. 98 spending reflects both state General Fund and local property tax dollars. | 17 Source: Legislative Analyst's Office
California Ranks Low on Several Measures of Support for K-12 Education • In 2015-16, California ranked: – 51st nationally in the number of K-12 students per teacher (about 22-to-1). – 41st in K-12 spending per student , after adjusting for differences in the cost of living in each state. – 37th in K-12 spending as a share of the state economy , as measured by personal income. | 18
State Spending Per Student at CSU and UC Remains Well Below Pre-Recession Levels, Despite Recent Increases Direct General Fund Expenditures Per Full-Time Student, Inflation-Adjusted $20K University of California $17,266 California State University 16 12 $11,842 $9,699 $10,525 8 $7,764 $6,178 4 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17* * Estimated. Note: Figures are in 2016-17 dollars and reflect "full-time equivalent" enrollment, which accounts for credits taken by each student relative to a full-time course load. Data exclude indirect state funding for CSU and UC attributable to Cal Grant tuition and fee payments. | 19 Source: Department of Finance, California State University, and University of California
Enrollment in Subsidized Child Care and Preschool Has Not Recovered From Recession-Era Cuts Average Monthly Number of Children Enrolled 400K California State 381K Preschool Program CalWORKs Child Care 315K 141K 294K 300 Non-CalWORKs Child Care 128K 122K 200 158K 121K 114K 100 82K 58K 67K 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Note: Figures are rounded to the nearest thousand. California Community Colleges CalWORKs Stage 2 data for 2016-17 reflect estimates, not actuals. Source: California Community Colleges Chancellor’s Office, California Department of Education, | 20 and Department of Social Services
Without an Increase in 2018-19, CalWORKs Grants Will Be Below the Deep-Poverty Line for the Eleventh Straight Year Annualized Maximum Grant for a Family of Three as a Percentage of the Federal Poverty Line 60% 54.5% 41.2% 40 Below 50% of the federal poverty line = “deep poverty” 20 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Note: Grants are for high-cost counties. The proposed 2018-19 budget does not increase grant levels. Source: Budget Center analysis of Department of Social Services, US Department of Health and Human Services, and US Social Security Administration data | 21
Due to Budget Cuts, State Spending for SSI/SSP Grants Is About 40% Below the 2007-08 Level General Fund Expenditures in Billions, Inflation-Adjusted $4.2 $2.6 $2.5 Note: Figures are in 2018-19 dollars. All figures are estimates except for 2018-19, which reflects the Governor’s proposed expenditure level. | 22 Source: Department of Social Services
1107 9th Street, Suite 310 Sacramento, California 95814 916.444.0500 @CalBudgetCenter calbudgetcenter.org
Recommend
More recommend
