Dependence on ‘the rich’ in California tax collections

It has long been known that California is heavily dependent on a ‘soak the rich’ strategy for collecting personal income tax. An article from Capital Journal reprinted in the LA Times (assuming I’m reading the byline correctly) explains the success of soaking some while advocating a change in strategy: Broaden the tax base to ease disproportionate dependence on the rich.

Here’s some info from the article that shows the state’s dependence on ‘the rich.’

The filers with the top 1% of income paid 50.6% of all income taxes in 2012, which is up from 41.1% the previous year. Cutoff to hit the top 1% is $525,000. There were 150,000 returns in this category.

Filers with the top 5% of income paid 70% of all income taxes in 2012. Cutoff for that group was $206,000.

Filers with income in the bottom 80% paid 9.4% of 2012 income taxes. Income under $90,000 puts you in the bottom 80%.

You can see volatility on the horizon for 2013. The surge in 2012 tax collections is attributed to two major factors, according to the article. First, Facebook’s IPO generated a lot of capital gains. Second, many people shifted capital gains in ’12 to avoid federal tax increases in ’13. Thus, there won’t be as much taxable personal income in ’13 as there was in ’12.

Here is a recap of that data:

  • category       ’12 share  cutoff
  • top 1%           50.6%     $525K cutoff
  • top 5%           70%        $206K cutoff
  • bottom 80%     9.4%     $90K cutoff.

I will not get into a discussion of what can or should be done or whether anything ought to be changed. I’m just trying to get hold of what is happening around us.

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