Dr. Know

[November 11th, 2009]

I was told 50 percent of all the income taxes in California were collected from only 140,000 people. Oregon is one-tenth of California’s size, so do only 14,000 people pay half of all our income tax? And can we squeeze even more cream from these cash cows?

—Jerry M., Portland

By all means, let’s use California as an exemplar of how a state should run its finances. I’m dying to be where they are.

That said, as much as I hate millionaires (even thousandaires have been looking a bit smug to me lately), the truth is that the vast, echo-y udders of our cash cows are pretty well creamed out.

Consider: Our top state income tax rate is roughly comparable to Cali’s 10.55 percent. But it’s not the rates that make the difference in how the two states apportion the tax burden, it’s the details.

According to the LA Times, 48 percent of income taxes in California do indeed come from just 140,000 tax returns. In Oregon, by contrast, the top 1 percent (approximately 18,000 returns) are paying about 25 percent of the income tax. Are the Golden State’s most golden citizens really that much richer than ours?

In a word, no (though they’re probably better-looking). California’s rich don’t pay more income tax than ours; its regular folks pay less.

In Oregon, everyone making over $7,601 (a year!) goes into the 9 percent bracket, with higher rates starting at $125,000, unless voters overturn those higher rates in January.

In California, the top bracket is reserved for those earning over $1 million—and families making under $45K pay nothing. Thus, Cali’s top earners pay a higher percentage of a proportionally smaller haul.

Of course, California makes up the difference (theoretically, at least) with an 8.25 percent sales tax. You say tomato, I say tax lien; everybody pays one way or another.