Uncle Sam rips off California

Terry Jeffrey
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Posted: Aug 20, 2003 12:00 AM

When Congress passed President Bush's third major tax cut package this May, every California Democrat in the House of Representatives and both of the state's Democratic senators voted against the package. House Minority Leader Nancy Pelosi, whose San Francisco district includes some of the richest neighborhoods in America, summed up her party's argument when she condemned the new law as "tax breaks for the wealthy."

She might as well have said "tax breaks for Californians." Few places have suffered more from Pelosi's politics of class warfare than Pelosi's home state.

On average, Californians pay a higher percentage of their income in federal taxes than most Americans because Californians earn more per capita than most Americans, and because the federal tax code -- even with the reductions in the top income tax rates signed by President Bush -- is still designed to impose a disproportionate burden on people who earn more money.

A recent study by J. Scott Moody, senior economist for the Tax Foundation ( www.taxfoundation.org ), demonstrates that Californians not only pay more federal tax per capita than most Americans, but also get less in return from the federal government.

Uncle Sam is ripping off California.

In 2002, Moody reports, the per capita federal tax burden in California was $7,313 -- or 116 percent of the national average. On the other hand, per capita federal spending in the state was only $5,592 -- or 88 percent of the national average. For every dollar California sent in taxes to Washington, D.C., it received only 76 cents in return.

"Since both of the federal government's largest revenue raisers, the individual income tax and the payroll tax, are levied as a percentage of income," Moody writes, "states with a high income per capita will also have high federal tax collection per capita. This effect is exacerbated by the progressivity of the federal tax system which causes tax burdens to rise more rapidly than income as the economy grows."

To demonstrate how the progressive federal tax code hits California specifically, I asked Moody to compare California's federal tax burden with Mississippi's. "California's per capita personal income in 2002 was 48 percent higher than Mississippi's ($32,996 vs. $22,372)," he concluded. "However, California's per capita federal tax burden was 89 percent higher than Mississippi's ($7,313 vs. $3,873)."

The federal government took a total of $255.9 billion in taxes from Californians last year, and returned $195.7 billion in spending. That means the state's relationship with Uncle Sam cost Californians a net $60.2 billion -- a deficit that far outstrips the highly publicized $38 billion state budget shortfall that this year inspired a recall election for Democratic Gov. Gray Davis.

Only five states did worse than California in their relationship with the federal government: New Jersey (which got back 62 cents for every dollar it paid in federal taxes), Connecticut (65 cents), New Hampshire (66 cents), Nevada (74 cents), and Massachusetts (75 cents).

Even so, federal spending in California makes the state budget look like peanuts. The state's recently enacted budget calls for about $99 billion in spending. That is only a bit more than half of the $195.7 billion the federal government spent in California last year.

Tellingly, according to Moody's report, that $195.7 billion included $59.3 billion in federal retirement (Social Security) and disability payments and $45.2 billion in other direct payments to individuals. The federal welfare state in California is bigger than the state's indigenous budget.

This is not what the Founders intended when they crafted a constitution for a federal republic that strictly limited the powers of the central government.

California is no longer a sovereign state so much as a politician's piggybank. It is a place where both local and federal officeholders can raid the earnings of productive people to finance a welfare state that nurtures the allegiance of voters by rendering them dependent on government largesse.

What we are seeing now is a revolt by California's productive taxpaying classes. If they see their enemies clearly, they won't stop at removing Gray Davis. They will also remove the Democrats they have sent to Congress, who have squandered far more of their money than Davis could ever dream of.