San Diego Tax Fighters

10969 Red Cedar Dr.

San Diego, CA 92131

Voice: (858) 530-3027

Monday, 2 April, 2012

Press Release – Authored by Richard Rider

California “Tax Freedom Day” IMPROVES – sorta, kinda

Today the Tax Foundation released its annual computation of “Tax Freedom Day” for the nation and each state. http://taxfoundation.org/taxfreedomday, “Tax Freedom Day” is the day on which the average taxpayer completes paying their taxes – federal, state and local. It’s a widely used (though incomplete) benchmark representing the tax burden to citizens.

First the seeming bad news – the 2012 California Tax Freedom Day is four days later this year than in 2011 – it’s now 20 April. The “good news” is that the whole country’s Tax Freedom Day is four days later this year – 17 April. Seems California ran in place – and yet somehow in the wrong direction, at first glance.

The primary reason for this seemingly downward slide is actually itself good news – our recovering economy has resulted in higher tax receipts at all levels of government. Tax Freedom Day actually dropped two weeks during the recession, and has now recovered about half those days.

But actually there is good news for California – our RANKING compared with the other 49 states improved significantly. We went from the 6th worst to the 11th worst, a significant step up (or down, depending on one’s perspective). Or is it? The answer, of course, is “yes and no.”

As I see it, there are three major factors that have affected California’s 2012 state ranking. In order of importance:

1. California’s statewide “temporary” tax increases turned out to be temporary after all! The California income tax rate went down a quarter percent at the first of 2011, and the state sales tax rate dropped a full one percent on 1 July, 2011.

Of course, this reduction had nothing to do with the preferences of our Sacramento politicians. It was the voters who overwhelmingly decided not to extend these tax increases – the proposition (1A) needed only a simple majority to pass. The Establishment, the legislative majority and Governor Schwarzenegger all urged extension of the taxes. Indeed, proponents (primarily public employee labor unions led by CTA) spent almost six times more than opponents, trying to convince the voters, but they lost by almost a 2/3 vote – 65.4% voted NO!

http://ballotpedia.org/wiki/index.php/California_Proposition_1A,_Temporary_Tax_Increase_(May_2009)

2. California’s unemployment rate stubbornly continues to be well above the other states – we still have the 2nd highest state unemployment rate (January, 2012) – 10.9%. This is a major switch from just 6 years ago when California was slightly below the national unemployment rate. The current national unemployment rate 8.3%. The national unemployment rate not including CA is only 7.9%, making the CA unemployment rate 37.2% higher than the average of the other 49 states. http://www.bls.gov/lau/ In California, unemployment is the new tax dodge – a tax relief strategy we could do without.

3. Our domestic out-migration (people moving out of California) slowed during the recession, but is picking up again. In 2010 (latest figures) we lost a net 154,000 people to other states. If it were the hypothetical “average” Californians who were departing, that would not affect our ranking. But it’s far more likely that we are losing our wealthier, ambitious and/or entrepreneurial folks – California is still a great state to reside in if one is drawing welfare.

Of course, if California voters approve a “millionaires’ tax” in November, next year our Tax Freedom Day will zoom back up the calendar towards May. Or perhaps not. Indeed, if we can drive enough wealthy folks from the state, we can reduce our Tax Freedom Day even further, as the ranking is based on the average taxes paid as a percent of income — not tax rates.

Is that a good plan?

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This entry was posted on Monday, April 2nd, 2012 at 2:27 pm and is filed under Blog Posts.