The tax season is upon us.
As you’re calculating state and federal payments, you may be wondering: How much am I paying? What am I paying for? Or simply, where does it all go?
I can’t answer the federal portion—we’re not FEDmatters—but I would like to help you understand what happens here in California.
You may have heard proclamations about how the state has high, if not the highest, taxes in the country. Or declarations that Proposition 13, the landmark property tax control measure voters adopted in 1978, has either saved or ruined California. But what’s really true or half true?
It’s generally agreed the state has a progressive tax structure that’s dependent on the wealthy, largely through income taxes. Some warn that our over-reliance on the rich has created a volatile tax structure that leads to multi-billion dollar deficits in a recession. Yet voters are making the choice: California twice passed income tax hikes on the rich—in 2012 and again in 2016.
So what can be done? Although changing the tax system is hard, a lot of proposals this year aim to do it.
In the Legislature, Democratic state Sen. Kevin de León of Los Angeles has proposed allowing taxpayers to sidestep the new $10,000 federal cap on state and local tax deductions—a GOP-pushed cap that which was widely viewed as a knock against progressive states with high taxes such as California. De León’s SB 227 and SB 581 would allow taxpayers to make charitable contributions to public schools, state colleges and state parks and receive an 85 percent state tax credit for their contribution.
Republican state Sen. Jeff Stone of Riverside is proposing to tax California’s wealthy property owners who live out-of-state. He recently introduced a bill requiring those property owners to pay a prorated share of their income taxes based on the amount of time they spend in California. Stone would like to use that money to give tax exemptions on the first $100,000 in income for individuals and $200,000 for joint filers.
And Democratic state Sen. Bob Hertzberg of Los Angeles has a bill to impose a sales tax on professional business services, from accounting to web design. His proposal calls for offsetting the new tax by lowering the state corporate and income tax.
Voters this fall may finally have a shot at modifying Prop. 13, often described as California’s political third rail. A coalition of civil rights and community organizations is trying to put a measure on the November ballot to tax commercial properties at market values. Known as “split roll,” the measure would generate between $6 billion and $10 billion annually for local government and schools while leaving Prop. 13 protections for homeowners untouched.
Some ideas will quickly fade due to a lack of political appetite or appeal, yet these ideas all suggest a fundamental need to reevaluate California’s tax code.
In the next few weeks, I’ll be working on a project to explain California’s state and local tax system. I’ll discuss what it looks like, where the money comes from and where it goes. I’ll also decipher some of the odd interactions between the state and local governments as they divvy up different pots of money.
For now, I would love to hear from you. What would you like to know about California’s tax system? What has confused or frustrated you?
- How do California taxes compare to taxes in other states?
- How much of the state tax burden does Silicon Valley shoulder?
- Where do state and local taxes really go?
We’ll be sharing updates, and using the hashtag #cmtaxes.
My hope is to help residents understand what your taxes pay for, how the system got this way, and what it means to the state, your school and your community during good and bad times.