Does Soaking the Rich Really Work?
Saw this item from Postrel who is citing Sac Bee's Weintraub on how the California budget is out of whack because the economic slow down hit the wealthy in California thus driving down the amount of tax money collected from same said wealthy tax payer. Excerpts:
The rich are no longer getting richer in California. And the rest of us, oddly enough, are suffering from their misfortune.
That's the story from the latest report on tax returns filed for the 2002 tax year. The preliminary figures, which I obtained from the Franchise Tax Board last week, show that the number of returns reporting incomes exceeding $1 million dropped again, to about 25,000. The combined income earned by those fat cats also shrunk, by more than 20 percent.
Why should we care?
Because California's skewed income distribution, combined with progressive tax rates, means that the people at the very top of the income heap pay a very high percentage of the personal income tax collected in this state.
The million-dollar earners peaked in 2000, when 44,000 of them -- about enough to fill your average baseball stadium -- reported incomes totaling $172 billion and paid more than $15 billion in taxes. The tax take from that relative handful of returns accounted for more than one-third of all income tax paid in the state.
The next year, the number of returns reporting incomes that high slumped to 29,000. Their combined income also declined, by nearly half, to $95 billion. And here was the killer: Their tax liability dropped from $15 billion to just under $8 billion.
The money lost to the treasury that year would have been enough to pay for the state's entire commitment to higher education, or most of the cost of the Medi-Cal system that provides health care to six million of California's poorest residents.
The income, much of it generated by profits on dot-com stock options, simply vanished, as quickly as it had appeared. The latest figures show that the downward trend, while it slowed in 2002, continued.
Since 2000, when the high-tech bubble was concentrating income at the higher end of the scale, the share of California income reported by those highest fliers -- the million-dollar earners -- has been cut in half, from 20 percent to just 10 percent. More broadly, all of those earning more than $100,000 in California saw their combined income drop from 54 percent of all the money earned in the state to 46 percent.
The middle-class, meanwhile, saw its share of the income expand. Those earning between $50,000 and $100,000 increased their share of the income from 23 percent to 27 percent. But people in that income category pay relatively little income tax in California. Combined, they pay a bit less today than they did in 2000.
In fact, those earning between $50,000 and $100,000, while they took in 27 percent of the income in 2002, paid 19 percent of the income tax. People earning more than $100,000, while earning 46 percent of the money in the state, paid 73 percent of the income tax.
One has to wonder if the same thing is happening at the Federal level? There is a lot of weeping and gnashing of teeth over the big deficits. At the Federal level, deficits are due to three things: rises in spending, falling revenues due to economic slowdowns and falling revenues due to tax cuts. I would imagine some Think Tank in DC has calculated how each has contributed to the current deficits in Washington. Anyone within a click of this blog know where that data can be found?
I'll go look and if I find it, I'll report back here in this blog space.