Dan Walters:
Who is really paying taxes?
(Published April 14, 2000)

The federal government is running budget surpluses for the first time in the memory of most Americans. In California, taxes are pouring into state coffers faster than politicians can spend them, creating a multibillion-dollar windfall.

Federal surpluses mean that the national debt can be reduced, thus freeing up funds that otherwise would go to interest payments; and/or taxes can be cut; and/or the Social Security system's long-term deficits can be solved.

California politicians, meanwhile, can choose from among tax cuts, pushing school spending toward the national per-pupil average, making long-overdue investments in highways and other public works, improving health care, or building a reserve against a future economic downturn.

The surge in taxes has been largely credited to the very healthy economy, and that's accurate as far as it goes. But as Americans complete their federal and state income tax returns this week, they should also ponder the exact nature of the tax bonanza. And it is this: High-income families are reaping the lion's share of the economic boom's bounty, but they're also paying an even greater share of income taxes.

Whatever federal and state politicians do with the money, they -- and those who will benefit from the spending -- should be thanking the relative few who are earning $100,000-plus incomes.

Internal Revenue Service data for 1997, the last year for which detailed numbers are available, reveal that taxpayers with $100,000-plus adjusted gross incomes filed just 7 percent of the returns but accounted for 40 percent of the reported income and paid a hefty 58.4 percent of the taxes collected.

The flip side of the picture is also startling. Taxpayers with adjusted gross incomes under $20,000 filed 42.7 percent of the returns but earned just 7.2 percent of the total income and paid just 3.1 percent of the taxes (not counting Social Security taxes, of course).

The contrast is even stronger at the state level, according to 1996 tax data collected by the Franchise Tax Board, both because the state income tax system is more progressive than the federal system and because California has benefited strongly from the high-tech industry's boom. State officials say that stock options and capital gains on stock gains largely account for the revenue surge.

The extra billions of dollars that the state is raking in are coming almost entirely from income taxes, rather than sales taxes or other sources, and virtually all of them are coming from high-income taxpayers.

In 1996, $100,000-plus taxpayers filed 6.5 percent of state income tax returns and accounted for 36.5 percent of the adjusted gross income but paid a whopping 62.2 percent of the income taxes -- a proportion that's been climbing steadily through the years and probably is approaching 70 percent today. Those with adjusted gross incomes under $20,000 paid less than 1 percent of state income taxes in 1996.

This is not a plea for sympathy for the affluent. They've done quite well from the economic wave and have the cars, houses, stock brokerage accounts and other material manifestations to prove it. Nor is there a clamor among the wealthy for big federal and state tax cuts, the fond hopes of Republican politicians notwithstanding.

It is, rather, a suggestion that we acknowledge who's really paying the taxes that support our array of public services and don't allow politicians to get carried away with pseudo-populist claptrap about taxes in an election year. It's a simple fact that if the rich don't continue to prosper, the rest of us will feel the squeeze on public services we all enjoy.

DAN WALTERS' column appears daily, except Saturday.
Mail: Sacramento Bee . P.O. Box 15779, Sacramento, CA 95852;
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E-mail: dwalters@sacbee.com

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