Tax Rate Debate Includes Which Figures to Use

Talk about taxes and you trigger controversy--no surprise. But you can even get a feisty argument over how to measure taxes and the tax burden.

For the purpose of its study of the state and local tax burden, The Times compared the California tax load with other states on the basis of taxes collected as a portion of total personal income.

Most experts agree that this is the most meaningful way of comparing tax rates among jurisdictions. Most taxes are levied on the basis of all wealth and ability to pay, not per-capita or solely on payroll earnings.

This measure was chosen by Gov. Pete Wilson’s Office of Planning and Research in 1992 in a research paper, noting that the per-capita method “is somewhat misleading in failing to adjust for differences in average incomes among states.”

The Times’ figures are based on the latest available data, for fiscal year 1991 for most major levies, as compiled by the U.S. Bureau of the Census and the U.S. Advisory Commission on Intergovernmental Relations.

The California Taxpayers’ Assn., a conservative, business-oriented group, proposes an alternative measurement in a recent study: dollars of taxes paid per employed person. The group argued this is a more accurate measure because “taxes are paid mostly by those on payroll.”

By that measure, it says, California is fifth in the nation, compared with 23rd in the government tables.

The taxpayers group acknowledged that its formula may not be perfect because “some non-working individuals are taxpayers, such as the independently wealthy and elderly people who earn enough retirement benefits.”

In fact, according to the State Franchise Tax Board, nearly one-third of all income reported on state tax returns is not from wages and salaries, but from interest income, dividends, business income from some types of corporations, retirement checks and other sources.

Neither the figures used by The Times nor the most recent Cal-Tax studies incorporate the $7-billion tax increase approved as part of the state budget agreement in 1991. But national experts say the California increases probably will not change the ratings significantly because most other states also have boosted taxes in recent years.

In 1991, 14 states raised their income tax, 24 states their corporate income tax and 21 states their sales tax.

Some of those California increases also are due to expire during the next two years, if the economy and revenues rebound.