Middle-Income Parents Get the Short End of the Stick

October 15, 2009

Fewer than two out of 100 of the wealthiest 1 percent of California taxpayers would owe more in personal income taxes if the Commission on the 21st Century Economy’s – aka the “tax commission” – proposals for overhauling the state’s tax system were implemented. How many middle-income taxpayers would owe more? About two out of five – 26 times as many.

Thanks to a Franchise Tax Board (FTB) analysis presented at a recent Assembly Revenue and Taxation Committee hearing, we now know that a far greater share of low- and middle-income taxpayers would see their personal income taxes increase under the tax commission’s proposal. Overall, the FTB estimates that approximately two-thirds of the state’s taxpayers – 7.2 million – would see a reduction in their personal income taxes, while about one-third – 3.4 million taxpayers – would face an increase. But a full 38.3 percent of taxpayers in the middle fifth of the income distribution – those with incomes between about $27,000 and $47,000 – would owe more, compared to 21.6 percent of taxpayers with incomes of about $85,000 or more and a mere 1.5 percent of taxpayers with incomes of at least half a million dollars.

The tax commission’s plan would hit middle-income families with children particularly hard since it calls for the elimination of most personal income tax credits and deductions, including the dependent credit, which reduces the amount of taxes owed by taxpayers with children or certain other relatives. Under the current tax system, a married couple with two children and an income of $69,000 would owe $158 in personal income taxes if they claim the dependent credit and the child and dependent care expenses credit, which reduces the amount of taxes owed by families with qualifying child care expenses. However, without the ability to claim these credits under the tax commission proposal, this family’s income taxes would increase more than five-fold to $851. In contrast, a married couple with the same income but no dependents would owe nearly one-third less in taxes if the tax commission’s recommendations are implemented than they owe under the current tax system.

– Alissa Anderson

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Why the COTCE Proposals Are Bad News for the Jobs California Needs Most

October 9, 2009

Shortly after finishing my testimony before the Assembly Revenue and Taxation Committee’s hearing on the recommendations of the Commission on the 21st Century Economy (COTCE) yesterday, I landed on an example for driving home the point that the Commission’s proposed business net receipts tax (BNRT) is bad for the jobs that we can all agree California needs most: Those that pay high wages and provide good benefits to workers and their families.

Take the following example of two hypothetical widget firms. Both employ 100 workers, earned $1.0 million in profits last year, and purchased $1.0 million of raw materials from other firms. Acme Widget paid its workers, on average, $40,000, while Beta Widget paid an average of $80,000 in wages and benefits. Acme’s gross receipts were $6.0 million, with net receipts of $5.0 million. Beta Widget had gross receipts of $10.0 million and net receipts of $9.0 million.

Under the COTCE’s proposed 4 percent BNRT (we’ll leave aside for a moment whether this rate would be sufficient to offset the revenues lost from the COTCE’s proposed elimination of the corporate income tax and most of the state’s sales tax and reduction in the personal income tax), Acme Widget – with its lower paid workforce – would pay $200,000 in tax, while Beta – which paid higher wages and offered full-family health benefits – would pay $360,000. Under the state’s current corporate income tax, both firms would pay an identical $88,400 on their $1.0 million in net income.

We’ve previously blogged a lot on the Commission’s shift of the cost of public services from high- to middle- and low-income households. But there’s something equally, if not more, wrong with a tax system that penalizes businesses that seek to do right by the workers they employ.

– Jean Ross

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A Step Closer to Providing More Relief for California’s Jobless

October 9, 2009

Nearly 155,000 unemployed Californians are expected to run out of unemployment insurance (UI) benefits by the end of the year, but some relief may be at hand: A fourth extension of UI benefits is pending before Congress. A bill was introduced in the US Senate yesterday that would provide 20 additional weeks of UI to the unemployed in states with high jobless rates such as California. Workers are currently eligible for up to 79 weeks of UI benefits, but for thousands of families, that’s not nearly enough. A record three out of 10 unemployed Californians (29.9 percent) have been out of work for more than half a year. And that’s not likely to change any time soon given the relatively meager number of jobs available. New data released today show that, nationally, there were more than six job seekers for every job opening in August – up slightly from July and more than double the number a year ago. With jobs so hard to come by, California’s unemployed desperately need additional weeks of UI benefits to help them make ends meet until the labor market improves.

– Vicky Lovell and Alissa Anderson

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Health Reform’s Medi-Cal Expansion Would Put a Dent in Uninsured Population

October 8, 2009

Even as Congress wrangles over the details of a health reform package, one aspect seems fairly noncontroversial: More low-income adults should be able to obtain health coverage through Medicaid (Medi-Cal in California).

Under current law, adults between ages 19 and 64 generally only qualify for Medi-Cal if they are disabled, pregnant, or have dependent children. However, all three of the primary Congressional health reform bills propose to extend Medicaid to adults who do not have dependent children as long as they meet the income threshold, which ranges to 150 percent of the federal poverty line, depending on the proposal.  For a single adult, this translates to an income of up to $16,245 per year in 2009.

This provision to expand Medi-Cal, alone, could put an enormous dent in California’s uninsured population. More than 1 million childless adults have incomes below 150 percent of the poverty line and could qualify for Medi-Cal. Expanding coverage to this population is sound public policy that would ensure the lowest-income Californians have coverage and access to preventive medical services in order to avoid more costly medical care later.

– Hanh Kim Quach

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Fatally Flawed

October 7, 2009

Check out Fatally Flawed: What Would the Commission on the 21st Century Economy’s Recommendations Mean for California?, which examines how the COTCE’s proposals for overhauling the state’s tax system would impact the state’s budget and California taxpayers. In a briefing at the Capitol today, Executive Director Jean Ross showed that the COTCE’s plan is “fatally flawed” because it would exacerbate the state’s budget problems, shift the cost of providing state services from high- to low- and middle-income Californians, and rely on a risky new tax for roughly half of the state’s General Fund revenues.

To learn more about the COTCE’s proposals from a wide range of perspectives, attend the Assembly Committee on Revenue and Taxation’s two-day hearing tomorrow and Friday.

– Alissa Anderson

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