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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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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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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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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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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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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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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
Source: Franchise Tax Board
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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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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
Source: Franchise Tax Board
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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)
Source: Franchise Tax Board
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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
Source: Franchise Tax Board
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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