California's Progressive Income Tax System

Tax Consequences

Impact of tax laws on business decisions

Alcohol Tax Decline

Reduction in state revenue from alcohol taxes

Tax Credits

Reductions in tax liability directly

Tax Expenditures

Revenue loss from credits and deductions

Tax System Criteria

Revenues, fairness, growth, administration, and accountability.

Regressive Taxes

Sales, excise, fuel, and energy taxes that impact low-income households more.

Proportional Tax

Same share of income paid in taxes at all income levels.

Tax Rate Schedule

Schedule used to calculate tax owed

Tax System Revenues

Should match budgeted expenditures and population growth.

General Fund

State fund for any purpose, excluding special funds

California's Tax Progressivity

State's tax system favoring higher tax rates for the wealthy

Nominal Tax Rate

Statutory tax rate imposed on a tax base

Tax Deductions

Subtractions from taxable income

Tax Base Breadth Measure

Ratio of revenue loss to revenues collected

Budget Deficit

Gap between state revenues and cost of funding services.

Tax System Purpose

Governments raise revenue for public services through taxes.

Wealthy's Share of State Income Taxes

High-income earners contribute the most to state taxes

Progressive Tax

Higher-income families pay a larger share of income in taxes.

Tax System Functions

Raises funds, provides incentives, and offers assistance.

Proposition 26

2010 amendment reclassifying fees as taxes

Proposition 30

2012 ballot measure raising CA General Fund revenues

Proposition 39

2012 measure changing corporate income tax calculation

Tax System Efficiency

A good system minimizes resource allocation influence

Tax Deductibility

Ability to deduct certain taxes from federal taxes

California Adjusted Gross Income

Adjusted income for California tax purposes

Taxation Analysis

Assessment of tax levels relative to personal income

Marginal Tax Rate

Rate at which the last income increment is taxed

Tax System Evolution

Changes in corporate and personal income tax shares over decades.

Revenue Shifts

Changes in revenue sources over time

State and Local General Sales Taxes

Combined taxes on general sales in California

State and Local Property Tax

Combined taxes on property in California

Revenue Comparison Table

Comparison of CA tax revenues to US averages

Tax Rate Accountability

Concerns on who pays and benefits from taxes

Vehicle License Fee

Considered a regressive tax in California.

Corporate Income Tax Share

Contribution to CA General Fund revenue

Sales and Use Tax Share

Contribution to CA General Fund revenue

Alissa Anderson

Contributor who updated the special report.

Samar Lichtenstein

Contributor who updated the special report.

Tax Fairness Importance

Critical for equity and compliance in tax systems

Tax System Knowledge

Critical for influencing state budget and policy priorities.

Tax Administration

Critical for taxpayers' perception of fairness

Tobacco Tax Decline

Decrease in state revenue from tobacco taxes

Tax System Structure

Determines resources available for public services and policy implementation.

Final Incidence

Distribution impact of a tax in the economy

Tax System Stability

Diverse revenue sources for public service funding

Income Inequality Impact on Taxes

Effect of income gap on tax distribution in California

Tax Policy Implications

Effects of tax thresholds on low-income families

Tax Accountability

Ensuring tax burdens are distributed fairly

Investment Income Taxation

Equitable system taxes investment income at the same rate as wages.

Tax System Balance

Fairness depends on the mix of progressive and regressive taxes.

Jean Ross

Former executive director who initially wrote the special report.

California Budget Project

Founded in 1994 to provide fiscal and economic policy expertise.

Tax System Resources

Funded by foundation grants, subscriptions, and individual contributions.

Adjusted Gross Income

Income before deductions for tax purposes

Taxable Investment Income

Income from investments subject to California tax

California's Income Tax Thresholds

Income levels at which taxes begin, high in California

California Taxable Income

Income subject to California tax after deductions

Progressive Taxes

Income taxes with graduated rates that impact higher-income families more.

Tax Compliance Importance

Increases revenue and reduces enforcement costs

Tax Equity Perception

Influences fairness perception in tax systems

Tax Exclusions

Items not subject to taxation within a tax system

Tax vs. Fee Court Decisions

Legal rulings distinguishing between taxes and fees

Initial Incidence

Legally obligated payment of a tax

Personal Income Tax Act of 1935

Legislation establishing California's income tax

Two-Thirds Vote Requirement

Legislative approval for state tax revenue increases

Regressive Tax

Low-income households pay a larger share of income in taxes.

Tax Rate Structure

Progressive, flat, or regressive tax rate design

Tax System Surpluses

Projected after temporary tax increases and budget cuts.

Tax Policy Goals

May influence narrowing or broadening tax bases

Tax System Fairness

Measured by the share of family income paid in taxes.

Tax Incidence Analysis

Measuring who pays how much of an individual tax

Tax Comparison Metrics

Methods to compare tax levels across jurisdictions

Taxpayer Adjustments

Modifications made to income for tax calculations

California's Income Tax Rates

Nine rates from 1% to 12.3%, progressive system

Personal Income Tax Share

Percentage of CA General Fund revenue source

Effective Tax Rate

Percentage of tax base paid after deductions

Tax System Challenges

Potential return to budget deficits after temporary tax increases expire.

Taxable Business Income

Profits from unincorporated businesses subject to tax

Inequitable System

System favoring investment income over wages

Dependent Credit

Tax credit for each qualifying dependent claimed

Tax vs. Fee

Tax is for public services, fee is for specific benefits

State Corporate Income Tax

Tax on corporate profits in California

Corporate Income Tax

Tax on corporate profits, state revenue source

State General Sales Tax

Tax on general sales in California

Sales and Use Tax

Tax on goods and services, state revenue source

Personal Income Tax

Tax on individual income, major CA revenue source

California's Personal Income Tax

Tax on personal income in California, progressive rates

State Tobacco Tax

Tax on tobacco products in California

Progressive Tax System

Tax system where higher incomes pay a higher percentage

California's Taxing of Out-of-State Income

Taxation of income earned in California regardless of residency

State Alcoholic Beverage Sales Taxes

Taxes on alcoholic beverages sales in California

State Motor Fuels Taxes

Taxes on motor fuels in California

Broad Tax Base

Taxing most potential items to lower tax rates

Taxation of Baseball Players' Earnings

Taxing of earnings based on games played in California

Narrow Tax Base

Taxing relatively few items, often at higher rates

Fair Taxation

Taxpayers contribute based on ability to pay for public services.

Horizontal Equity

Treating taxpayers in similar situations similarly

Taxable Income Sources

Types of income subject to California tax

Tax System Inequity

Unequal treatment of income sources in taxation

Tax Rate

Unit of measurement for imposing a tax

Tax Base

Universe of goods or income types subject to tax

Tax Policy Changes

Used as a tool for policy implementation and budget adjustments.

Tax System Equity

Vertical and horizontal equity in tax distribution.

Tax Compliance

Voluntary adherence to tax laws