State Tax Code ‘Fairest’ in U.S., Study Reports

As the result of changes California made last year in its tax codes, the state has the most progressive income tax system in the nation, according to a study released today by the nation’s largest state and local government employees union.

The study by the 1.4-million-member American Federation of State, County and Municipal Employees Union says California’s top ranking came about because of changes made last year to bring the state into conformity with the sweeping changes in federal tax law approved by Congress and President Reagan in 1986.

Basically, what the study says is that Californians with high incomes are paying relatively more of their income in state taxes than taxpayers with lower incomes.

The study notes that a “typical” two-income couple in California who earned $24,000 in 1986 paid a state tax of $167. As a result of changes in California’s tax law, the same couple was required to pay no tax at all in 1987.

Build Up Public Support

The union is pressing for what it considers a “fairer” tax system to build up public support for government programs.

“Taxpayers will simply not support critical state and local government services when the responsibility for paying for them is not shared fairly,” said Gerald McEntee, the president of the union.

And California, according to the report, has “the fairest state income tax” in the nation.

The study is the first of its kind. It was prepared to assess the way states responded to changes in the federal income tax. Thus, it did not attempt comparisons with earlier years.

As a result of the 1986 federal Tax Reform Act, important changes were made in how personal income is computed by individuals and married couples for the purposes of determining their federal tax obligation. Numerous deductions and tax credits were eliminated or reduced, while tax rates were significantly lowered in the overhaul of the federal tax system.

The study says 38 of the 41 states that levy their own income taxes updated their tax codes in response to changes in federal tax law.

The study found that in 21 states, wealthier taxpayers came out better than those with lower incomes when legislatures began amending the tax codes.

The state said to have the least progressive state income tax is Pennsylvania. States with the least progressive taxes, according to the report, are those that “require low-income and middle-class households to devote almost the same share of income to paying the tax as they require of the wealthy.”

In California, however, the tax bite for lower-income taxpayers was reduced. This was done by increasing the child care credit, dependent exemption credit and standard deduction.

“California’s income tax is the most progressive because it imposes the highest tax on the wealthy relative to the tax imposed on the middle class and the poor,” the authors say.