California Wealthy Taxpayers Paying 3% Effective Tax Rate?

California Governor, Jerry Brown, is having a hissy fit because Trump’s new tax law limiting some itemized deductions, most notably interest expense, will cause all the wealthy residents to form a line of mass exodus.   California has some of the highest priced real estate in the country, and a significant number of residents negotiate interest-only mortgage loans in order to cut their monthly out-of-pocket costs.   The rationale in the past was the fact that the interest was 100% deductible and therefore their actual cash cost was further lowered.   In addition, this lowered cost allowed more people to buy homes as they could squeak in the debt to income ratio margins.

The Bay Area currently has a median home price of $770,000 which is considered – middle class.   Oddly, it also has some of the lowest property tax rates in the country, lending more speculation that the wealthy vastly under-support the economy. The fact that the highest tax bracket for state income taxes is 13.3% with a 1% mental health surcharge for those earning over $1 million, certainly contributes to California’s cost of living as one of the most incredibly expensive.   And it has nothing to do with Trump – and everything to do with price demand – a capitalistic market.  

Of course, despite the fact that California has an annual budget of $265 billion or roughly $6700 per capita, twice that of Florida, they still can’t make ends meet.   Jerry Brown is convinced that the tax limitation was a Republican conspiracy to hurt California as well as his esteemed reputation.

Not to be out done, the California State Legislature is busily proposing ways to circumvent the new tax law by allowing the reclassification of interest as a ‘charitable contribution’.   Unfortunately, the feds make up the federal laws, so attempting to reclassify a Federal Law would be a slippery slope legality.

According to the Democrats within the Senate, California’s wealthiest 1% pay 48% of the income tax revenue… remember when Romney tried to make the same statement and was ripped apart?   Anyway, income tax revenue represents roughly 35% of the California Budget, 26% is Federal Assistance.   I imagine that if the California Assembly were to try to insert a new law circumventing the interest deduction, Trump could simply offset the dollars against Federal Assistance.  Given the Sanctuary City status, given constant natural disasters, California could easily find themselves stripped of all funding.

It’s much like a game of chess.   Only Jerry Brown doesn’t have his Queen to save him. FYI:  That would have been Hillary.  

But it isn’t just the income taxes California would lose. Their second highest source of revenue is from sales taxes which currently stand at 7.5% with a max State and Local of 10%.   A VAT Tax could generate significantly more revenue from a tourist standpoint, but the wealthy spend – the non-wealthy don’t, so revenue is primarily generated by the wealthy.

If the initiative to divide California and splinter off the rural portions to New California as proposed, Jerry Brown will be left with an even smaller base of income to support their massive welfare programs and prison systems.

As of 2015, California ranks number 1 for total gross federal collections, however, on a per capita basis it falls far short at 16th, below Missouri, which would indicate they are not paying their – “Fair Share”.   Given 38% of Californians earn more than $877,560 per year, compared to the national average of about $48,642, the math would support that they aren’t even close to paying their – Fair Share.  

With roughly 40 million residents, 38% would equate to 15.2 million earning $878,000 at a flat tax rate of 15% would mean they would generate over $2 trillion Federal tax revenue per year… not including remaining taxpayers who contribute 52% to the total take.   In actuality the total revenue collected in 2015 was a mere $405 billion.  A YUGE difference!  This would equate to an effective Federal rate of just – 3%.

Looks like a lot of someone’s in California just aren’t anteing up!!

Interesting…who could it possibly be?

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