Governor Brown’s Tax Hike: Who’s Paying and How Much?

Last Monday, Governor Edmund G. Brown, Jr. released a revised budget for the State of California. Initially, Governor Brown had estimated a $9.2 billion budget shortfall for 2012-13, but this sum increased to $15.7 billion “as a result of a reduced revenue outlook, higher costs to fund schools, and decisions by the federal government and courts to block budget cuts.” To bridge the gap, the Governor is proposing to “increase[] the personal income tax on the state’s wealthiest taxpayers for seven years and increase[] the sales tax by one-quarter percent for four years.”

Currently, the California personal income tax rate is capped at 9.30%. Under The Schools and Local Public Safety Protection Act of 2012, the tax rate will increase as follows.

Individuals

Over But not Over Tax is
$250,000 $300,000 10.3%
$300,000 $500,000 10.8%
$500,000 And over 11.3%

Married

Over But not Over Tax is
$500,000 $600,000 10.3%
$600,000 $1,000,000 10.8%
$1,000,000 And over 11.3%

Head of Household

Over But not Over Tax is
$340,000 $408,000 10.3%
$408,000 $680,000 10.8%
$680,000 And over 11.3%

In reality, the state personal income tax rate is even higher because the above rates do not include the existing millionaire tax imposed under the Mental Health Services Act. Now, which neighborhoods will be most affected if Governor Brown’s initiative is passed? To answer this, consider the 2011 Personal Income Tax Statistics from the Franchise Tax Board.

Community Returns AGI ($000) Tax Liab ($000) AGI/Return
City of Industry (91716) 13 24,225 2,327 1,863,461.54
Atherton (94027) 3,325 3,327,600 311,898 1,000,781.95
San Francisco (94119) 695 681,773 50,346 980,968.35
South Pasadena (91031) 556 394,016 38,299 708,661.87
Los Angeles (90067) 3,321 2,063,047 198,027 621,212.59
Beverly Hills (90209) 553 342,699 33,714 619,708.86
San Diego (92186) 10 6,124 453 612,400.00
Fountain Valley (92728) 521 304,264 29,258 584,000.00
San Francisco (94111) 2,670 1,371,921 117,722 513,828.09
Palo Alto (94304) 1,785 899,139 70,677 503,719.33
Portola Valley (94028) 3,443 1,580,110 131,490 458,934.07
Beverly Hills (90210) 10,373 4,710,612 430,194 454,122.43
Santa Monica (90411) 251 109,214 9,307 435,115.54
Los Altos (94023) 455 186,078 16,508 408,962.64
Ross (94957) 1,144 436,655 40,682 381,691.43
Newport Coast (92657) 4,681 1,751,588 151,964 374,190.98
Los Altos (94022) 9,444 3,452,708 286,538 365,598.05
Pope Valley (94567) 284 97,350 8,377 342,781.69
Palo Alto (94301) 8,515 2,881,461 233,110 338,398.24
Diablo (94528) 548 177,048 14,874 323,080.29
Encino (91436) 8,973 2,878,893 247,384 320,839.52
Newport Beach (92658) 1,387 442,227 35,767 318,837.06
Rancho Santa Fe (92067) 5,674 1,784,631 183,846 314,527.85
Pacific Palisades (90272) 11,021 3,443,915 284,952 312,486.62
Redlands (92375) 666 198,102 12,847 297,450.45
Santa Monica (90402) 5,786 1,700,920 140,960 293,971.66
Beverly Hills (90212) 8,102 2,373,166 221,178 292,911.13
Belvedere Tiburon (94920) 6,252 1,823,960 153,321 291,740.24
Los Gatos (95030) 6,419 1,808,747 148,861 281,780.18
San Juan Capistrano (92693) 354 96,211 8,520 271,782.49
Los Angeles (90077) 4,298 1,153,146 109,848 268,298.28
Los Angeles (90071) 578 154,373 15,446 267,081.31
Santa Barbara (93150) 506 132,786 11,902 262,422.92
San Francisco (94104) 1,264 330,247 26,243 261,271.36
Los Angeles (90049) 19,202 4,963,913 405,742 258,510.21
Los Altos (94024) 10,509 2,661,766 204,472 253,284.42

Any surprises? I was not expecting to see the City of Industry at the top of the list. In communities with few returns, a few outliers could distort the average adjusted gross income (AGI) per return. Here’s the data for the other side:

Community Returns AGI ($000) Tax Liab ($000) AGI/Return
San Francisco (94159) 290 -2,179 854 -7,513.79
Stanton (90680) 12,217 -109,341 9,547 -8,949.91
San Diego (92137) 99 -896 175 -9,050.51
Bakersfield (93390) 634 -6,554 1,955 -10,337.54
Tres Pinos (95075) 303 -3,192 858 -10,534.65
Modesto (95352) 455 -7,580 1,011 -16,659.34
Bakersfield (93303) 234 -6,861 1,686 -29,320.51
Bakersfield (93383) 126 -3,971 83 -31,515.87
Guasti (91743) 148 -5,484 318 -37,054.05
Helm (93627) 115 -4,317 73 -37,539.13
Tipton (93272) 1,298 -112,761 1,445 -86,872.88
Concord (94522) 321 -39,031 540 -121,591.90
Upland (91785) 702 -138,095 1,798 -196,716.52
North Hollywood (91616) 34 -13,144 105 -386,588.24

I still don’t quite understand how an entire community can end up with a cumulative negative AGI. So, more money was lost than earned. However, someone in these communities made money since there was an overall tax liability.

As for the sales tax bump, a/k/a Out-of-State Retail Sales Incentive Act, at some point, sales tax hikes will end up being counter-productive as the spread between in-state and out-of-state sales prices continues to widen and lures more people to shop online. I guess the governor is confident that we have not reached that stage yet.