Dynamist Blog

California's Tax Windfall

In a fascinating bit of reporting, Kathleen Pender of the SF Chronicle traces a huge chunk of the state's recent fiscal good fortune back to a single source:

California took in a record $11.3 billion in personal income tax receipts in April, $4.3 billion more than it collected last April. It's almost certain that a significant chunk of April's haul came from Google employees -- perhaps one-eighth or more of the tax receipt gain.

The fact that a single high-flying Silicon Valley company is giving such a big boost to the state treasury can be determined by examining insider stock trading information filed with the Securities and Exchange Commission.

Fourteen of Google's top executives and directors sold $4.4 billion worth of stock last year, according to Thomson Financial. That includes founders Sergey Brin and Larry Page, each of whom sold about $1.3 billion worth of stock.

Assuming the 14 insiders had acquired the shares at very low cost and that all were in the top 10.3 percent state-tax bracket, they could have owed the state close to $450 million in capital gains tax on their stock sales.

It's just the latest illustration of two remarkable California facts: that the state is incredibly dependent on a few rich people for its tax revenue and that those rich people haven't all left for Nevada, where there's no state income tax. How skewed are tax payments in California? Pender reports:

California's tax structure is highly progressive, which makes it highly volatile. For the 2004 tax year, 38,000 California tax returns reported more than $1 million in income. They represented just 0.2 percent of all state-tax returns, yet they accounted for 14 percent of total adjusted gross income and about 30 percent of the total personal tax.

The top 3 percent of the returns, those with incomes exceeding $200,000, paid about 60 percent of all state taxes.

"What happens to the top 1 percent is of great interest to the Department of Finance," says David Hitchcock, a debt analyst with Standard & Poor's.

(Via Good Morning Silicon Valley.)

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