Paying Your 'Fair Share' & the Tiger Woods Effect

Posted by Greg Hines, Legislative Director, Tax & Corporate Counsel on Nov. 22, 2008

As members of the California State Assembly Budget Committee discussed the merits of the Legislative Analyst and Governor’s Administration’s budget proposals, a handful of members on the committee repeatedly called for certain California taxpayer’s that need to "pay their fair share." Of course, most people around the Capitol know this terminology is usually code for raising taxes on high-income wage earners and the business community, but given the dire circumstances facing the State’s revenue picture, it begs a deeper dive. What is your "fair share" of taxes?

The state's personal income tax is the largest single revenue source, representing almost 55% of all General Fund revenues. Here's how it breaks down:

1% of Californians pay 50% of income tax. Income tax represents approximately 55% the entire General Fund, meaning that out of a state of over 34 million, less than 150,000 contribute approximately 27.5% of the state’s entire general fund.
Corporate and Franchise taxes account for another 11% of the General Fund.
All total, California depends on the upper middle and high wage earning individuals and the business community to contribute over 56% of the state’s revenues.

That is a lot of numbers, but breaking it down to basic terms, that means that a large majority of Californian’s pay very little for their California residency status and the services and entitlements afforded to them by that right. That makes sense to an extent.

The problem is that we have slowly sent signals to businesses and individuals that California will tax success more than any other State. Why would any business leader operating in today’s global marketplace make a decision to expand or invest in California? Ask Intel why they no longer manufacture in the state they were founded, or try to talk to Tiger Woods, the Southern California native golfer, about moving to Florida after turning pro.   Simple answers: Less taxes for the former and $9.6 million less taxes for the latter.

Here's where the disconnect really starts. Every change in tax law has some affect on the overall position of the state’s economy.   Without a strong economy -- of which high wage manufacturing plays a crucial role -- we can't pay for quality government programs.   Moreover, in a weak economy, more citizens need these entitlements.   I know, that concept is not exactly groundbreaking news. But it is almost impossible to get the Legislature to acknowledge that in their decision making.

So, as we proceed in these difficult times, we must recognize the consequences of new revenue policies in terms of their short and long term effects on the economy and wealth creators that fund our programs. California has learned the hard way that leading the country with bold programs is visionary, but expensive.   For this reason, every tax policy coming out of the State Legislature should come with an answer to the question: Is this policy "fair" to our economy.   In other words who will stay and who will go as a result?   We owe that to all 34 million of us who need the State's government funded programs.

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