New CBP Brief: Who Pays Taxes in California?

April 11, 2014

A new brief from the California Budget Project — released in advance of Tax Day — reports that California’s lowest-income households on average pay a greater share of their income in state and local taxes than other households. This is even after accounting for the temporary tax increases of Proposition 30 — approved in 2012 — which largely targeted very-high-income Californians.

Using data provided by the Institute on Taxation and Economic Policy (ITEP)Who Pays Taxes in California? shows that nonelderly households in the state’s bottom fifth in terms of income, who earn $13,000 a year on average, pay 10.6 percent of their incomes in state and local taxes. This is a larger share than all other segments of households — including the very wealthy. The top 1 percent of Californians, with an average annual income of $1.6 million, pay just 8.8 percent of their incomes in state and local taxes — or nearly two full percentage points less than the state’s poorest families.

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Who Pays Taxes in California? examines how different components of California’s tax system — such as property taxes, sales taxes, and the personal income tax — affect lower- and higher-income Californians. The brief also suggests options for making California’s tax system fairer and promoting economic security for low-income families.

And also: if you’re looking for a comprehensive overview of California’s tax system, be sure to check out the CBP’s Principles and Policy: A
Guide to California’s Tax System.

— Steven Bliss


Senate Committee Scheduled to Debate the CalWORKs Maximum Family Grant Rule

April 7, 2014

The California Work Opportunity and Responsibility to Kids Program (CalWORKs) is a key part of California’s safety net for low-income families with children. As the name of the program indicates, CalWORKs provides critical support and services to families with children, and nearly four in five Californians who receive CalWORKs assistance are children. Yet, CalWORKs’ Maximum Family Grant (MFG) rule — a type of rule commonly known as a “family cap” — does just the opposite. The MFG denies additional cash assistance to families with children who are conceived and born while any member of the family is receiving assistance. A current legislative proposal — Senate Bill 899 (Mitchell) would take California in a positive direction by repealing CalWORKs’ MFG rule, which has been in place for nearly 20 years. The bill will be heard by the Senate Human Services Committee tomorrow, April 8, at 1:30 pm in Capitol Room 3191.

Although the MFG was designed to limit the number of children born to women receiving cash assistance, research from California and other states with family cap rules shows that the existence of a family cap does not affect women’s decisions to have children. Moreover, other research illustrates that family cap rules plunge vulnerable children deeper into poverty by denying additional assistance to newborns and their families. For instance, research shows that the percentage of children living in deep poverty — less than 50 percent of the federal poverty line — increased significantly in states with a family cap rule.

How did we get here? Many states rushed to implement family cap rules in the 1990s, both before and after welfare reform, and 24 states have had a form of a family cap rule in place at some time. However, more recently a number of states such as Illinois, Nebraska, and Oklahoma have repealed their family cap rules. As recently as 2012, California was one of just 17 states (see map) that still imposed this punitive rule on low-income families receiving cash assistance.

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In the many years that California has had the MFG rule, it has not once been amended to reflect changes in how California provides assistance to low-income families. Attempts to repeal or amend the MFG in 2007 and 2011 were unsuccessful due to concerns over how to pay for the minor cost of covering additional children in CalWORKs. Today, California’s fiscal condition is improving, and this opens the door for another look at policies that undermine efforts to assist low-income children and their families.

One in four children live in poverty in California. We know that poverty exposes vulnerable infants and children to a variety of stressors that may impact their physical and mental health. Further, the effects of poverty can extend into adulthood with economic repercussions for the individual and the state. The consequences of continuing the state’s flawed MFG rule are dire — for children, their families, and the state. SB 899 is good policy for California and its children.

— Kristin Schumacher

 


Recent Lessons in Tax Policy From California and Kansas

March 31, 2014

In 2012, as states across the country continued to cope with the aftershocks of the Great Recession, California and Kansas pursued markedly different paths in tax policy.

In Kansas, the state legislature in May 2012 passed — and Governor Brownback signed into law — a package of large tax cuts, including dropping the top income tax rate by approximately one-fourth and eliminating income taxes entirely on business profits that are “passed through” from businesses to their owners. In addition, the Kansas tax package raised the standard deduction and eliminated a number of tax credits that benefit low-income individuals and families.

In contrast, California voters in November 2012 approved Proposition 30, increasing personal income tax rates on very-high-income Californians for seven years and raising the state’s sales tax rate by one-quarter cent for four years.

The divergent paths pursued in California and Kansas provide an opportunity to compare state approaches to tax policy and the impacts of those policies on households, public systems and services, and economic performance.

According to a new report from the Center on Budget and Policy Priorities (CBPP), the tax cuts enacted in Kansas “were among the largest ever enacted by any state” in percentage terms. The evidence from Kansas so far:

  • Large revenue losses: Kansas has seen an 8 percent decrease in revenues used to fund schools, health care, and other public services, with the revenue loss projected to rise to 16 percent over the next five years.
  • Continuing cuts to schools: While most states are attempting to restore funding for schools after years of cuts, Kansas is proposing still more cuts. The Governor recently proposed another reduction in per-pupil general school aid for the next fiscal year that would leave funding 17 percent below pre-recession levels.
  • Little evidence of improving economic performance: Since the tax cuts, Kansas has added jobs at a pace slower than the country as a whole.

California’s experience since the passage of Proposition 30 in 2012 stands in stark contrast to the recent story Kansas. The evidence from California so far:

  • Large revenue gains: The state’s General Fund revenues increased from $85.6 billion in 2011-12 to an estimated $99.8 billion in 2013-14, and are projected to grow to $106.9 billion in Governor Brown’s proposed 2014-15 budget, an increase of nearly one-quarter (22.6 percent) since 2011-12.
  • Increased funding for schools: The Governor’s 2014-15 spending proposal assumes a total funding level of $61.6 billion for schools and community colleges in 2014-15, nearly one-third (30.6 percent) more than in 2011-12.
  • Improving economic performance: Since 2012, job growth in California has outpaced that of the US as a whole.

To be clear, higher state revenues in California are a product of Proposition 30 and a recovering economy, just as slower economic growth in Kansas contributes, along with tax cuts, to lower state revenues. The linkages between tax policy changes and economic performance are, in general, weak. As the CBPP study reports, “states that cut taxes in the 1990s performed worse, on average, over the course of the next economic cycle than states that were more fiscally prudent. And the academic literature overwhelmingly finds that states with lower personal income taxes perform no better economically than their peers.” Recent experiences in California and Kansas support this evidence — increasing taxes in California did not curb economic growth, while decreasing taxes in Kansas did not boost economic growth.

What is clear, however, is that large tax cuts in Kansas — most of which went to high-income households — have significantly reduced state revenues and resulted in cuts to the state’s schools and other public systems and services, while promises of economic improvement have failed to materialize. Meanwhile, in California, the revenues provided by Proposition 30 have provided the state with the fiscal policy space to boost school funding, pay down debts and liabilities, and begin to reinvest in other public structures and supports as the state’s economy recovers.

— Chris Hoene


Bending the Prison Cost Curve

March 26, 2014

Budgets, as we like to say at the CBP, are not just about dollars and cents. At a fundamental level, budgets express our values and priorities as a state. The choices we make through the state budget process help determine whether California is improving outcomes for families and communities and investing in policies that promote broadly shared prosperity. While California has made some major progress in this regard — the state’s robust implementation of federal health care reform is a prime example — in other ways we’ve fallen short.

One way in which we’ve clearly missed the mark is illustrated by the chart below. Under the Governor’s proposed spending plan for 2014-15, California is expected to spend more than $62,000 on each prison inmate — nearly 90 percent higher than in 1994-95, after adjusting for inflation. In contrast, our state is expected to spend slightly less than $9,200 for each K-12 student in 2014-15 — a level that reflects a marked improvement relative to recent years, but which is up by only 30 percent since 1994-95, after adjusting for inflation. In other words, over the past two decades spending per prisoner in California has increased nearly three times faster than spending per K-12 student.

California can do better. “Bending the prison cost curve” — that is, curtailing the persistent trend of rising state prison spending — is a challenging but necessary undertaking that deserves policymakers’ sustained attention. Making progress toward this goal would free up state dollars that could be redirected from the correctional system to essential state priorities in the years ahead.

— Scott Graves


Medi-Cal in the Governor’s Proposed 2014-15 Budget: Health Care Reform Boosts Enrollment and Federal Funding

March 21, 2014

Medi-Cal — the Medicaid Program in our state — provides health care coverage for millions of low-income Californians, primarily children, youth, and women. Last year, state policymakers approved expanding Medi-Cal — as authorized by federal health care reform — to extend coverage to more than 1 million low-income adults who had not previously been eligible for the program and made other changes intended to increase enrollment.

A new CBP analysis — the latest in a series of briefs on key components of Governor Brown’s proposed 2014-15 budget — looks at the Medi-Cal Program. This brief shows that 1.5 million Californians are projected to enroll in the program due to implementation of health care reform, bringing total Medi-Cal enrollment to slightly more than 10 million. This boost in enrollment is projected to increase federal funding for Medi-Cal by more than $10 billion through June 2015.

At the same time, however, the Governor’s proposed budget largely maintains a 10 percent cut to Medi-Cal payments for doctors, dentists, and other providers, which could hinder enrollees’ access to care.

This CBP brief on Medi-Cal in the Governor’s budget proposal can be found — along with the full series of briefs, which covers education, human services, corrections, and other topics —  on our website.

— Steven Bliss


Hearing Focuses on CalFresh and Food Insecurity in California

March 11, 2014

At a joint hearing of the Senate and Assembly Human Services Committees today, March 11, at 1:30 p.m. in Capitol Room 437, invited testimony from the California Budget Project will highlight just how prevalent food insecurity is in California and the toll that food insecurity can take on children and families.

Food insecurity occurs when families lack the available means to obtain enough nutritious food to thrive, which means they face hunger or the threat of hunger. This is due to a lack of money and other resources. In California, more than one in seven households were food insecure in 2012, the most recent year for which data are available. Only 11 states have a larger share of households experiencing food insecurity than does California. The percentage of food-insecure households in our state has increased by 44 percent since 2006, and has remained fairly constant since 2008. This shows that the recovery from the Great Recession has not reached many low-income Californians.

Food insecurity and poverty often go hand-in-hand, but public policies can help address these problems. According to the Public Policy Institute of California’s California Poverty Measure, CalFresh and CalWORKs lifted hundreds of thousands of children out of poverty in 2011. Taking measures to boost CalFresh participation and to increase the CalWORKs grant would go far in reducing food insecurity in California. These are among the issues that the joint hearing will take up today.

— Kristin Schumacher


SSI/SSP in the Governor’s Proposed 2014-15 Budget: Assistance for Seniors and People With Disabilities Is Left Below the Poverty Line

March 5, 2014

The Supplemental Security Income/State Supplementary Payment (SSI/SSP) Program provides modest cash grants — funded with both federal and state dollars — that help 1.3 million low-income seniors and people with disabilities in California to pay for food, housing, and other basic necessities.

A new CBP analysis — the latest in a series of briefs on key components of Governor Brown’s proposed 2014-15 budget — looks at the SSI/SSP Program. This brief shows that despite an improved revenue outlook, the Governor’s proposal does not boost state support for SSI/SSP grants. As a result of recent years’ cuts to the state portion of SSI/SSP grants, the current grant for an individual — $877 as of January 1 — is 10 percentage points below the federal poverty line.

The brief also examines how the cuts to SSI/SSP grants have made it more difficult for low-income seniors and people with disabilities to afford basic living expenses and discusses options that state policymakers have for increasing support for SSI/SSP recipients.

SSI/SSP will be one of the major items taken up today by Assembly Budget Subcommittee No. 1 on Health and Human Services. The subcommittee will meet at 1:30 p.m. in Capitol Room 4202.

— Steven Bliss


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