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Richard Rider

Which income tax is more progressive — the U.S. or California?

I’ve written before about how — for many Californians — the Golden State income tax is LOW.  It’s not as low as the 7 states with zero state income tax, but for many it’s lower than MOST states. That’s because CA has the most “progressive” income tax in the nation.

As my 2013 example showed, a family of four (two minor kids) making a modest $50,000 salary and taking only the standard deduction pays a whopping $73 CA state income tax. Most states levy a higher tax — often MUCH higher.  If that family makes $40K, they actually pay LESS than zero state income tax — they get exemption credits back (like the federal EITC credit program).;postID=4138464434125132809
But I thought I’d take it a step further — comparing the CA progressive income tax with the FEDERAL progressive income tax. Which is more progressive?  Turns out, compared to the CA income tax, the federal tax structure is closer to a flat tax scenario — relatively speaking.

Taking the same family of four with that modest $50K income and no deductions, they would pay a federal income tax of $2,565.  That’s 35 times more than the $73 CA state income tax.

This startling differential narrows dramatically as one’s taxable income rises.  It’s not at all uncommon for a person making over $120,000 to pay as much as $1 of state income tax for every 2 federal income dollars.  At even higher levels, the ratio adjusts back down to a 3-1 ratio (ain’t taxes weird?).

While all this is riveting, I’m sure, there is a point I’m trying to make here.  With our uber-progressive tax policy, many in CA don’t hate the income tax. They find it a nonissue — a minor annoyance or even a source of income.  Hence they are well conditioned to vote for higher income taxes — on those making more than they are.Such is the problem with discussions of the “average taxes” people pay.  Such averaging hides the fact many pay little or nothing, while the burden falls disproportionately on a relatively few taxpayers.
Social justice?  Some might say so.  But good economic policy –given the “boom and bust” state tax collections and the ability of the wealthy to leave California for friendlier states?  Nope.  BAD economic policy.  Bad, bad, bad.