A Look at Californias Tax System: What Does It Do for Us and How - - PowerPoint PPT Presentation

A Look at California’s Tax System: What Does It Do for Us and How Can It Work Better?

ALISSA ANDERSON SENIOR POLICY ANALYST JULY 21, 2016 FAMILY ECONOMIC SECURITY PARTNERSHIP COORDINATING COUNCIL MEETING

calbudgetcenter.org

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The State Budget Directs Dollars to Communities Across California Through Three Funding Categories

Total Enacted 2016-17 Expenditures

Note: Reflects federal funds as well as state General Fund, special fund, and bond fund dollars. Source: Department of Finance

"State Operations,” Including: UC, CSU, and State Prisons 25.7% “Local Assistance,” Including: Public Schools, Community Colleges, CalWORKs Families, Medi-Cal Doctors, and Child Care Providers 74.2%

Local Assistance: Schools, Community Colleges, CalWORKs Families, Medi-Cal Doctors, and Child Care Providers, Among Others State Operations: CSU and UC, State Prisons, and Other Recipients Capital Outlay: Highways, Water Supply, Flood Control, and Other Infrastructure Projects 21.1% 77.6% 1.3%

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More Than 7 in 10 State Dollars Support Health and Human Services or Education

Proposed 2016-17 General Fund and Special Fund Expenditures = $167.6 Billion

Source: Department of Finance

$0 $5 $10 $15 $20 $25 $30 $35 Legislative, Executive, and Judicial Environment and Natural Resources Transportation Other Corrections Higher Education K-12 Education Health and Human Services 31.3% 30.6% 8.7% 7.9% 6.3% 6.1% 4.4% 4.7%

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Our tax system is a means to an end.

Taxes generate resources that allow us to strengthen our communities and economy.

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California’s tax system as a whole is regressive.

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California’s Lowest-Income Families Pay the Largest Share of Their Incomes in State and Local Taxes

Average Percentage of Family Income Paid in State and Local Taxes

Note: Data are for nonelderly taxpayers only and include the impact of Proposition 30 temporary tax rates and the offset for federal deductibility of state and local taxes. Source: Institute on Taxation and Economic Policy

2 4 6 8 10 12% Top 1 Percent Next 4 Percent Next 15 Percent Fourth Fifth Middle Fifth Second Fifth Bottom Fifth 7.4% 8.7% 8.7% 7.7% 9.0% 10.5% 8.2%

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Our Tax System Will Become More Regressive When the Proposition 30 Taxes Expire

Average Percentage of Family Income Paid in State and Local Taxes

Note: Data are for nonelderly taxpayers only and include the offset for federal deductibility

• f state and local taxes.

Source: Institute on Taxation and Economic Policy

2 4 6 8 10 12% Top 1 Percent Next 4 Percent Next 15 Percent Fourth Fifth Middle Fifth Second Fifth Bottom Fifth 7.4% 8.6% 7.8% 7.6% 8.9% 10.4% 8.1%

• 0.9%

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Why should we be concerned that California’s tax system is regressive?

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Only California’s Wealthiest Households Saw Substantial Increases in Average Income Between 1987 and 2014

Percent Change in Average Adjusted Gross Income, 1987-2014, Inflation-Adjusted

• 30

30 60 90 120 150% Top 1 Percent Top Fifth Fourth Fifth Middle Fifth Second Fifth Bottom Fifth

• 6.1%

48.1% 121.7%

• 16.0%
• 18.3%
• 16.2%

Source: Franchise Tax Board

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On Average, the Top 1 Percent Earns in About One Week What Middle-Income Residents Earn in One Year

Californians’ Average Adjusted Gross Income, 2014

Note: Figures are in 2014 dollars and are rounded to the nearest hundred. Source: Franchise Tax Board

0.5 1.0 1.5 $2.0M Top 1 Percent Middle Fifth $38,000 $1,895,000 ($36,000 per week)

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California’s Top 1 Percent Holds Nearly One-Quarter of State Income

About 160,000 Households Had Roughly 24 Percent of Total Income in 2014

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California’s Top 1 Percent Holds More Income Than the Bottom 60 Percent

About 160,000 Households Had Roughly 24 Percent of Total Income in 2014

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California’s tax system is not meeting the needs of our growing, changing population.

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California Faced Significant Budget Shortfalls in Nine of the Past 17 Years

State Budget Shortfalls or Surpluses

Source: Department of Finance

Economic recovery and Proposition 30 revenues

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California made deep cuts to core public systems during and after the Great Recession.

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Spending Per Student Declined by 20 Percent Between 2007-08 and 2011-12

K-12 Proposition 98 Spending Per Pupil, Inflation-Adjusted

2,000 4,000 6,000 8,000 10,000 $12,000 16-17* 15-16* 14-15 13-14 12-13 11-12 10-11 09-10 08-09 07-08 $9,436 $7,537 $10,328

* 2015-16 estimated and 2016-17 proposed. Note: Figures reflect 2016-17 dollars and exclude adult education, preschool spending, and child care. Proposition 98 spending reflects both state General Fund and local property tax dollars. Source: Legislative Analyst’s Office

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* Estimated. Note: Figures are in 2015-16 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. Source: California State University, Department of Finance, and University of California

State Spending Per Student at CSU and UC Dropped Between 2005-06 and 2011-12

Direct General Fund Expenditures Per Full-Time Student, Inflation-Adjusted

4,000 8,000 12,000 16,000 $20,000 15-16* 14-15 13-14 12-13 11-12 10-11 09-10 08-09 07-08 06-07 05-06 $7,193 $12,019 $9,473 $16,864 University of California California State University $10,280 $6,034

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California’s population will continue to grow and age, increasing the need for public services.

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The Number of Seniors Living in California Will Nearly Double by 2030

Projected Percent Change in Population, 2010 to 2030

Source: Department of Finance

20 40 60 80 100% 65 or Older 25 to 64 20 to 24 5 to 19 0 to 4 95.9%

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How can we make our tax system work better for us?

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Proposition 30 helped California begin reinvesting in education and other critical services.

The expiration of Proposition 30 tax rates will leave a permanent gap in state revenues.

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Due to Higher Revenues, 2016-17 Spending Per Student Would Be Nearly $900 Above 2007-08

K-12 Proposition 98 Spending Per Pupil, Inflation-Adjusted

2,000 4,000 6,000 8,000 10,000 $12,000 16-17* 15-16* 14-15 13-14 12-13 11-12 10-11 09-10 08-09 07-08 $9,436 $7,537 $10,328

* 2015-16 estimated and 2016-17 proposed. Note: Figures reflect 2016-17 dollars and exclude adult education, preschool spending, and child care. Proposition 98 spending reflects both state General Fund and local property tax dollars. Source: Legislative Analyst’s Office

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Expiration of Proposition 30’s Personal Income Tax Rate Increases Would Leave Permanent Gap in State Revenues

General Fund Revenues Before Transfers to the Budget Stabilization Account, in Billions

Note: 2015-16 is estimated; 2016-17 onward are projected. Additional revenues for 2018-19 and 2019-20 assume that personal income tax (PIT) revenue growth under an extended Prop. 30 would reflect the Administration’s projected underlying PIT growth rate absent Prop. 30 taxes. Source: Department of Finance (DOF) and Budget Center calculations based on DOF data

Projected General Fund Revenues Assuming Proposition 30 Expires Potential Additional General Fund Revenues if Proposition 30 Were Extended 100 110 120 130 $140B 2019-20 2018-19 2017-18 2016-17 2015-16 $118.8 $123.4 $127.9 $129.0 $133.3 $4.5 $7.7

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The CalEITC significantly boosts the incomes of low-earning workers.

Expanding the CalEITC would further reduce economic hardship, encourage work, and help make the tax system more progressive.

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The California and Federal EITCs Significantly Boost the Incomes of Working Families With Children

Maximum Increase in Income From the State and Federal Earned Income Tax Credits, 2015

Source: Budget Center analysis of the California and federal Earned Income Tax Credits

$3,000 $6,000 $9,000 $12,000 $15,000 Three or More Children Two Children One Child No Children 74% increase 83% increase 63% increase California EITC Federal EITC Earnings From Work

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Major tax breaks will cost the state over $48 billion in 2016-17.

Tax expenditures reduce revenues for other purposes and are often not subject to annual review.

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California Spends 45 Times as Much on One Tax Break for Homeowners as It Does on a Credit for Renters

Projected Revenue Loss, 2016-17

Note: Renter’s tax credit is nonrefundable and only available to low-income households. Source: Department of Finance

1 2 3 4 5 $6B Renter's Credit Mortgage Interest Deduction $5.0 Billion $0.1 Billion

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Improving Our Tax System Would Allow Us to Strengthen Our Communities

Our tax system is a means to an end.

– Taxes generate resources that improve the quality of

life for all people.

– Most state tax dollars return to our communities,

benefiting all of us.

– We can create a stronger California by improving our

tax system. Improving our tax system requires:

– Making it more equitable (progressive), so that people

contribute based on their ability to pay.

– Making sure that it produces enough resources to

meet the needs of our communities.

1107 9th Street, Suite 310 Sacramento, California 95814 916.444.0500 aanderson@calbudgetcenter.org @alissa_brie @CalBudgetCenter

calbudgetcenter.org