California Politics: The Taxes Paid By 100,000 Millionaires

When Gov. Gavin Newsom and state lawmakers settle on details of a new California budget in June to provide another year of government services for almost 40 million people, they will do so largely by tapping the fortunes of one of the most exclusive groups of taxpayers in the nation.

The group includes almost 100,000 taxpayers with incomes above $1 million — residents who represent only about one-half of 1% of all tax returns filed in the state but collectively pay about 40% of all California personal income taxes.

As tax day approaches, it’s this small subset of people who will likely again provide an outsize amount of government cash, a reminder of how dependent the state is on their fortunes.

96,322 tax filers. $35.3 billion in payments

State officials compile a robust amount of information about tax collections and the Californians who pay, delineated into categories such as adjusted gross income, taxable income and tax liability. But it’s a snapshot of what’s in the rearview mirror: the state Franchise Tax Board’s most recent report is from 2019 and agency officials didn’t respond to a Times request for any partial data sets that might have been compiled from 2020 or 2021.

Even so, the fundamentals are unlikely to change.

California’s progressive income tax policy, by which those who earn more are expected to pay more, has always been intended to skew collection toward a relatively small number of taxpayers. That group of high-income earners has grown in recent years, as has their total tax liability.

State data show that of the more than 17.5 million personal income tax filings in 2019, there were 96,322 tax forms with an adjusted gross income of at least $1 million. These taxpayers had a collective tax liability of $35.3 billion — the single biggest share of the state’s $90 billion in personal income taxes.

So what else does the most recent state tax data tell us about California’s millionaires?

We know this small group of taxpayers reported about $300 billion in taxable income, more than one-fifth of the state’s total. And we know they reported about 9% of the state’s wage and salary earnings but 42% of taxable income earned from interest payments and almost 45% of taxable income earned from stock dividends — a reflection of how investments, not paychecks, drive the income of the most wealthy.

But millionaires are hardly the only story worth telling about California’s progressive income tax system.

Widen the lens to include all California income tax returns with an adjusted gross income of $500,000 a year or more — a view that takes in about 17% of all tax filings in 2019 — and you end up with a group of taxpayers who owed $46.4 billion, more than half of the statewide total.

Click here to read the full article at the LA Times

Tax Day hits Californians harder than most

April 15 is forever recognized by everyone as the day of the year that you settle up your “debt” with the government, if you have one. Some people have no tax liability because only 60 percent of people actually pay taxes in California. These individuals should be recognized on this day each year as the ones who are working hard for the greater societal good and the American Dream.

Yet our government would rather look at Tax Day as Christmas and California taxpayers as individual Santa Clauses with never-ending gift bags of funds for the state. California’s personal income tax system consists of 10 brackets and a top rate of 13.3 percent. That rate ranks California as the highest in the nation among states levying an individual income tax. In 2011, our average total tax burden of 11.4 percent ranked fourth highest out of 50 states, and was well above the national average of 9.8 percent. California currently ranks 48th in the Tax Foundation’s State Business Tax Climate Index when comparing the states in five areas of taxation that impact business: corporate taxes, individual income taxes, sales taxes, unemployment insurance taxes and taxes on property. California took the most taxpayer money in the country in 2013 with $108.22 billion in tax revenues, 111.4 percent higher than the similarly populated state of Texas.

One would think that our state must be the “gold standard” in services due to the high amount of taxes flowing into Sacramento. The reality is we are ranked 46th in the nation for our education system. California drivers continue to pay the highest gas taxes in the nation, and due to Assembly Bill 32, a new fee is being added to those taxes. Further, California is ranked 47th in unemployment, a failure to every resident of our state. Given such high unemployment numbers, it is not a surprise that California has the highest rate of poverty in the nation, too.

As an investment advisor, it is my job to assist my clients in making decisions that ensure their money is working for them. Isn’t it about time that we empower Californians to insist that their tax dollars do the same? When did we settle for such mediocrity? I came to Sacramento to fight for more cost-effective policies and accountability when it comes to the spending of taxpayer money. As a representative of our taxpayers, their money needs to be invested wisely. Taxpayer dollars must be thoughtfully used to invest in our children’s education, deliver an educated future workforce and to support essential services such as public safety and our judicial system. Further, these investments should be supported by policies that incentivize business creation, job growth and economic recovery.

This legislative session, I’ve authored two common-sense bills that will ensure our taxpayer dollars are working for us and our communities. One of my bills, AB799, would create a more competitive investment climate and bring more resources to California in support of our local startup companies. Given that California’s tax structure is far less competitive than other states, investors are flocking elsewhere and taking countless jobs and capital investment with them. AB799 will move California toward becoming the best state within which to launch a startup company.

I’ve also introduced AB89, which will help local schools provide better resources and materials for our students inside the classroom by allowing schools to retain all of their funds without being forced to pay sales tax back to the state. Currently, our public schools, funded by our tax dollars, are subject to the state’s 7.5 percent sales tax which has created a “double tax” situation on our taxpayer dollars. By taxing public schools, the state is actually taking money out of our local classrooms. AB89 will fix this issue and ensure that more of our tax dollars make it into our classrooms.

President Ronald Reagan famously said “Status quo, you know, is Latin for ‘the mess we’re in.’” While we’re taking out our checkbooks this April 15, I think we should all take a cold, hard look at what we are paying into. Ultimately, it will take a more balanced representation of Republicans and Democrats in the Legislature to truly address our broken system. Until then, we can at least insist that our hard-earned money is being well invested while we continue to work toward returning fiscal responsibility to Sacramento.

Assemblyman Travis Allen, R-Huntington Beach, represents the 72nd Assembly District in the California Legislature.

Originally published online by the Orange County Register

Humor and History on Day Tax

“April is the month when the green returns to the lawn, the trees — and the Internal Revenue Service.” So observed Evan Esar, a collector of humorous sayings who understood that humor is the ultimate therapy. All of us need this therapy now that tax time is here.

Fortunately, a rich vein of humor and wry observations exist about taxes to help us through this time.

When tax day comes, most citizens pay what they owe … or what they think they owe. Discovering what you owe can be a challenge. Even one of the century’s greatest geniuses, Albert Einstein said, “The hardest thing in the world to understand is the income tax.”

Humorist Will Rogers put it this way: “The income tax has made more liars out of the American people than golf has. Even when you make a tax form out on the level, you don’t know when it’s through if you are a crook or a martyr.”

Indeed, taxes and golf are comparable. You drive your heart out for the green, and then end up in the hole.

The first income tax in this country was levied during Abraham Lincoln’s administration. Money was needed to fund the Union war effort. That income tax was repealed in 1872, seven years after the war ended.

Later attempts to bring back an income tax were thwarted by the United States Supreme Court, which declared the tax unconstitutional because it represented direct taxation on the citizenry. During the Civil War the Court had ignored this concern.

A constitutional amendment was necessary to establish an income tax. In arguing for such an amendment, proponents asserted that the income tax would only tax the rich. (Sound familiar with some of the tax increase strategies here in California?)

Rep. James Monroe Miller of Kansas said, “I stand here as a representative of the Republican Party of the central west to pledge you my word that the great western states will be found voting with you for an income tax. Why? Because they will not pay it!”

It was generally believed that residents of perhaps six wealthy industrial states in the Northeast would pay nearly all of the new income tax.

Well, you can’t fool all of the people all of the time. Editors of The Nation magazine warned at the time: “It is possible for a government to increase repeatedly the rates of such a tax.”

Or as Will Rogers put it: “Noah must have taken into the Ark two taxes, one male and one female. And did they multiply bountifully! Next to guinea pigs, taxes must have been the most prolific animals.”

In 1913 the 16th Amendment was passed, which allowed Congress authority to directly tax a citizen’s income.

The first year under the income tax, 357,598 Form 1040s were filed. Yes, the form carried that famous number even then. (Jay Leno explains Form 1040: For every $50 you earn, you get $10 and they get $40!)

The tax rate was one percent on incomes above $3,000 and rose to seven percent on incomes above half a million. This first income tax affected only one percent of the population.

Before the 16th Amendment, tariffs and excise taxes provided 90 percent of the federal revenue.

By 1920, the income tax was the dominant revenue raiser for the federal government. Middle income taxpayers were hit by the income tax to help fund World War I. Top tax rates eventually climbed to 91 percent before President John F. Kennedy proposed cutting them.

Taxes increase and government expands in times of crisis. Great growth in government and taxes occurred when this country began, during the Great Depression and when at war, particularly, the Civil War, World War I and World War II. American Patriot Thomas Paine saw this clearly at the nation’s founding. “War involves … unforeseen and unsupposed circumstances … but one thing certain, and that is to increase taxes.”

As a people, we have always been wary of taxes. U.S. Supreme Court Chief Justice John Marshall is often quoted from his groundbreaking decision in McCulloch v Maryland (1819): “The power to tax involves the power to destroy.”

However, 109 years later another Supreme Court Justice, Oliver Wendall Holmes, wrote: “The power to tax is not the power to destroy while this Court sits.”

On the façade of the mammoth IRS building in Washington, D. C., other renowned words of Justice Holmes are chipped in stone: Taxes are what we pay for a civilized society.

It should be noted, however, that Holmes made his famous remark in 1904 before the income tax was sanctioned. Taxes at that time took about seven percent of average incomes.

But even in Holmes’ day there were complaints about taxes. Two years before Holmes issued his famous saying, Mark Twain wrote in his notebook, “What is the difference between a taxidermist and a tax collector? The taxidermist takes only your skin.”

Of course, we need money to run the government. The argument is over how much and how it is spent.

Will Rogers recognized the problem in his inimitable way. “Of course we know our government is costing us more than its worth, but do you know of any cheaper government that’s running around? … You can try Russia! There’s no income tax in Russia, but there’s no income.”

Still, today the IRS has hundreds of different tax forms, plus pages of additional information to explain how to fill out those forms. The original Tax Code had 11,400 words; today it has over 7 million.

Despite the complexity, taxes are not avoidable and woe to him or her who tries evasion. Al Capone got away with vice, and he got away with murder, but he didn’t get away with not paying his taxes.

So we have to pay our taxes.

For most of us, however, tax time has us simply agreeing with Mark Twain’s admonishment, “[I] shall never use profanity except in discussing (house rent) and taxes.”

Originally published by Fox and Hounds Daily

Joel Fox is Editor of Fox & Hounds and President of the Small Business Action Committee


tax day

Nate Beeler, The Columbus Dispatch