TAXES : Study Finds Other Levies Offset State’s Progressive Income Bite

California boasts the nation’s most progressive income tax, although its overall tax structure still places a bigger burden on the poor than on the affluent, according to a study by two groups that advocate raising tax rates for the wealthy.

The report said the state’s income tax rates are highly progressive, structured so as to claim a larger percentage of income of the wealthy than of the poor.

But those rates are offset by a combination of state and county sales taxes that do just the opposite, according to the report by the Institute on Taxation and Economic Policy and the Citizens for Tax Justice.

The study found fault with all 50 states for enacting a combination of taxes that require the poor to pay proportionally more than the rich to keep state governments afloat. In addition to income taxes, the report examines the effect of property, sales and excise taxes on different income groups.

“What we found is that state and local tax systems are unfair,” said Michael Ettlinger, policy director for Citizens for Tax Justice. “We found that middle- and low-income families are paying higher shares of their income in almost every state than wealthy families.”

Others argued, however, that such notions of tax structure “fairness” are misleading. They cited a body of research showing that regressive tax structures give higher income earners more money to invest, which is better for the economy and thus improves conditions across the economic spectrum.

Daniel Mitchell, a senior fellow at the Heritage Foundation, a conservative Washington think tank, said that under a progressive system “you would have less growth, lower incomes and fewer jobs. But if you’re willing to overlook that and tax all your people away, then do it.”

Conversely, he said, such a system would hurt the poor more than the rich--who would lose a portion of their investment income but still have ample money to live comfortably.

“You don’t have to be the one paying the taxes to suffer,” he said. “We’ve had the slowest economic growth in seven years, and the chances are Donald Trump probably hasn’t moved out of his penthouse.”

John O’Hare, economic policy director of Citizens for Tax Justice, said the tax report was developed primarily to illustrate the national tax situation to public officials. The study is based on census information and federal tax forms of married couples up to age 65.

In California, the income tax rate begins at .2% for families earning $23,000 and gradually rises with income to 8.7% for the top-earning 1%--those taking in $374,000 or more, the report says.

The national average is less progressive, with those in the bottom fifth of income levels paying 1.3% in income taxes and the top 1% paying a 5% income tax.

In evaluating the states’ sales tax systems, however, California’s ranks among the 12 most regressive states, the report said. Combined sales taxes vary, with the base rate of 7.25% applied in 35 of the state’s 58 counties and the highest rate of 8.5% collected in San Francisco. In Los Angeles County, the rate is 8.25%.

In California, the report said, the poor pay 4.2% of their income in sales tax, middle-income families pay 2.7% and top-earners pay .7%.

Nationally, on average, a poor family contributes more than six times as much of its income in sales tax as does a rich family, the report said. A middle-income family pays four times as much as the affluent in sales tax.

When all forms of taxation are rolled into the equation, including property and excise taxes, the study found that the poorest one-fifth of the California population pays 12% of its income in taxes, the middle fifth 8.9% and the wealthiest 1% pays 11.6%.

The study did not rank overall tax rates state by state. But it did note that the national average for total taxes is 12.5% tax on families earning $23,000 or less, 9.8% for the middle income bracket and 7.9% for the richest 1%.