Monday, July 27, 2009

California Budget Stalemate

Not just this year, but year after year, the California state budget fight appears to be more intractable that anywhere else. One claim is that the the budget is balanced on the backs of very few taxpayers. So poked around for the data and found them online at the California State Franchise Tax Board Website. These data are very interesting to numbers geeks like me. For 2006 it is true that the 5,896 tax filers with incomes of $5million or more were liable for 21% of all tax receipts. But, their average state income tax rate was "only" 10%. Perhaps more interesting is that FTB provides a table with filings, total income and tax liabilities by income category. From this table it is relatively easy to construct a Lorenz curve comparing what fraction of income is earned by what fraction of earners (or filers in this case).

The more "curved" it is the more uneven the income distribution. About one-third of all income is earned by the top 5% of tax filers. I had expected this to be even more "curved." When you do the same thing for tax liabilities, you get:

The same top 5% of high earners are responsible for about two-thirds of total tax liabilities. With this visual representation, it becomes a bit more clear why high earners are trying so hard to hold the line on tax increases.

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