Reform of California's Steep Income Tax is Key to Stability and Growth
Press Release
4.13.2004
 For Immediate Release: April 13, 2004
SAN FRANCISCO – California can promote faster economic growth and more stable tax revenue by lowering and compressing tax rates, according to Taxing Times: How California’s Steep Income Tax Stifles Economic Growth, a new study from the Pacific Research Institute. “In 2002, California residents paid $941.07 in state income taxes for every man, woman, and child in the state, a figure more than 30 percent higher than the U.S. average of $642.93,” said authors Russell S. Sobel, Robert A. Lawson, and Joshua C. Hall. “California has the steepest income tax for single people, the eighth for married filers, and is the third most steep in the nation when calculated as the difference between the top and bottom rate,” they said. Taxing Times shows that California’s average income tax rate increases more sharply with income than in most other states. In addition to harming economic growth, these steep tax rates make tax receipts more vulnerable to changes in the business cycle, such as a recession. The authors provide solutions for policymakers to stabilize revenue and promote economic growth: • Compress the marginal rate structure by reducing the number of brackets or reducing the spread between the top and bottom rates. • Decrease the level of the standard deductions and personal exemptions. • Allow Californians to deduct federal income tax liability from their state taxable income. Author Russell Sobel is an associate professor of economics at West Virginia University. Robert Lawson is a professor of economics and George H. Moor Chair at Capital University. Joshua Hall is director of research at the Buckeye Institute for Public Policy Solutions in Columbus, Ohio. ###
About PRI
For 25 years, the Pacific Research Institute for Public Policy (PRI) has championed individual liberty through free markets. PRI is a non-profit, non-partisan organization dedicated to promoting the principles of limited government, individual freedom, and personal responsibility. About AEI
Founded in 1943, the American Enterprise Institute for Public Policy Research is dedicated to preserving and strengthening the foundations of freedoms, limited government, private enterprise, vital cultural and political institutions, and a strong foreign policy and national defense – through scholarly research, open debate, and publications.
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