Advertisement

Are rich paying their fair share?

When it comes to the state budget and state taxes, everybody knows the following facts:

People earning $75,000 or less pay little or no taxes now.

The same people use 99.9% of state social programs.

Ergo, millions of residents of this state are getting something for nothing, and the rest pay for their freeloading.

Advertisement

Of course I’m kidding. These are popular myths (I owe the formulation above to a reader’s e-mail), not facts. Yet, like a cracked windshield, they have the power to distort almost everything we see when we turn our attention to state spending and taxation.

We can quickly dispose of the notion that low-income residents pay little or no state taxes. They get an income tax exemption, it’s true, but they pay, proportionally, a greater share of their earnings on sales taxes. And many also pay property taxes even if they don’t own a home -- a portion of their rent goes to cover the taxes their landlord pays.

In 2007, the nonpartisan California Budget Project observed, the bottom fifth of taxpayers -- those earning less than about $18,000 -- paid about 11.7% of family income in state and local taxes. By contrast, the top 1%, earning $430,000 or more, paid only about 7.1% on average, counting the deduction of state and local taxes many could take from their federal tax bill.

The popular view of state government is that it does little beyond spooning out welfare payments and free healthcare to the poor. For the wealthy, this is a useful burlesque of the truth, for it rationalizes “flattening” state taxes, giving them a tax cut and everyone else an increase -- as was proposed by the recent state tax reform commission.

Advertisement

It’s rare that anyone examines the assumptions about who really benefits from state government and by how much, even though the exercise might help us judge whether the wealthy really are taxed more than their fair share, as is so often claimed. Who knows? Maybe they’re the freeloaders.

Indeed, the evidence is that everybody benefits from state services, and the wealthier you are the more you profit. In that light, shifting the tax burden down the income scale looks more unfair, dishonest, even -- dare we say it? -- immoral.

Let’s start with public education, which this year will consume nearly 55% of the general fund, or more than $52 billion.

California’s schools are often denigrated for poor average results, but these averages are deceiving. As educators well know, schools and districts tend to reflect the social and economic health of their communities. That’s why affluent districts such as Irvine and Palo Alto rank higher on the state’s Academic Performance Index (888 and 910 out of 1000, respectively, in 2007) than, say, Compton (608). State taxpayer funds go to all three of these districts; which residents would you say get more out of the spending?

In higher education, the University of California receives 60% of its core operating budget from the taxpayers. Last year, 23% of its undergraduates came from families with household income of more than $139,000, a group that accounts for 10% or less of all taxpaying households, according to the most recent state tax statistics. (Count on that percentage of undergrads to rise as the state jacks up student fees and cuts down on student aid.)

Families earning less than $46,000 accounted for about 28% of UC undergrads -- but that group encompassed about 60% of the state’s taxpaying households. That certainly makes UC seem a service skewed to the affluent end of the scale.

We shouldn’t ignore the broad economic value of public education. Somewhere on the Chamber of Commerce’s membership roll there may be a business owner whose success is based 100% on his or her personal effort -- without the help of at least a few drivers, mechanics, secretaries, bookkeepers, engineers, or managers taught to read and do sums at taxpayer expense. But I’ve never met one, and I’d wager that neither have you.

This is no secret to the business community -- a 2006 report for the California Business Roundtable cited the “quality of the labor force” as a key to the state’s future economic growth. Business leaders just forget who reaps the greatest return from that growth when they call for tax “fairness.”

Advertisement

Education is only the start. Our transportation infrastructure is indispensable for businesses and their owners. That’s why the business community constantly grouses about how the congestion and decrepitude of the freeways hamper the flow of goods to markets and ports. The Caltrans budget: $13 billion, counting money from special transportation funds.

Capitalism depends on the rule of law. Spending on state courts, the civil dockets of which are dominated by commercial actions, comes to $2.4 billion, net of income from fines, penalties and fees.

The correctional system, that fiscal sinkhole, will swallow up $9.8 billion, or 10% of the general fund this year. I doubt the inmates of San Quentin or Folsom regard the system as being run for their benefit. It’s for the law-abiding citizens on this side of the gates. The more affluent you are, the more you have to gain from its continued, well-financed operation.

One rarely hears the people who gripe about the cost of social services for the poor complain about services such as wildfire control: $1.5 billion in the last budget, not counting emergency funds.

Those aren’t private armies sent into the hills to quell fires. Fighting last month’s Station fire, which became a dangerous threat to upscale communities such as La Canada Flintridge, will cost taxpayers an estimated $100 million. (Up to 90% of that may be paid by the federal government, but Washington doesn’t run on charitable donations any more than the state does.)

Not everyone living in the fire zone is a millionaire, but it’s fair to say that not many are Medi-Cal enrollees either. I’m certainly not suggesting these fires should be left to burn, only that we should remember who gets the direct benefit of the firefighting effort and how it’s paid for. By the way, a proposal to surcharge property owners in high-risk wildfire zones, which would have brought in more than $200 million annually, died in the Legislature last year.

Even social services, which consume about 30% of the general fund, aren’t exclusively for low-income residents. The category includes programs for child development, the aging and public health, all of which serve plenty of middle-income families.

Despite these demonstrable truths, California’s knee-jerk reaction to almost every budget crisis is to shift the burden from the wealthy and increase it on the lowly. Spending on Medi-Cal and welfare took it on the chin in this year’s budget deal. It took the state Supreme Court to quash an attempt to balance the budget by raiding $3.4 billion from bus and train funding -- which would have disadvantaged low-income riders.

Advertisement

We could go on, but this should provide a window into the truth. Only if we keep a clear eye on the balance of state services and revenue sources will this trend be stemmed -- before our political leaders work things out so the wealthy receive all the services from the state, and pay for nothing.

--

Michael Hiltzik’s column appears Mondays and Thursdays.

Reach him at michael.hiltzik@latimes.com, read him at www.latimes.com /hiltzik, and follow @latimeshiltzik on Twitter.


Advertisement