The poorest fifth of taxpayers in California pay 11.7 percent of their annual income for state and local taxes, which include income, sales and excise taxes, the California Budget Project asserted in its new study.

The richest 1 percent of California taxpayers fork over 7.1 percent of their income to pay a host of state and local taxes, claimed the budget project, which describes itself as a nonpartisan group.

As for middle-income earners, the study found they pay 9.5 percent of their income on state and local taxes, which is considerably less than the double-digit figures paid by low-income people.

"It is an upside-down tax system," said Matthew Gardner, executive director of the Institute on Taxation and Economic Policy, a nonpartisan group. "The more you earn, the less you pay in taxes."

The budget project believes the policymakers should revamp California's tax system to bring it closer to the organization's vision for fairness. Income, property, sales, excise and other taxes should be scrutinized, said Jean Ross, the budget project's executive director.

"California ought to review everything we tax," Ross said. "How well does it work for economic efficiency? How well does it finance the level of public services we want? Does it achieve those goals with some level of fairness?"

What's more, low-income taxpayers should receive an earned income tax credit regardless of their tax-liability status, Ross said. Even people who pay no taxes should receive a check each year from the state to balance what they see as inequities, she proposed. That would mirror the federal tax system.

Some analysts, though, dispute the budget project's views that the primary tax encumbrance in California weighs down low-income people far more than those in the upper crust.

Scott Hodge, president of the nonpartisan Tax Foundation, cited data from the state's Franchise Tax Board that showed the major income tax liability in California is being borne by people in the top 5 percent of income earners.

"How could anybody say that California's tax system is upside down when it has the highest income tax rate in the nation, when you include the mental health surtax," Hodge said.

Hodge joked that high-income taxpayers in California should take advantage of the services that are bankrolled by the health surtax they must pay. "If you are wealthy and you live in California, you are clearly nuts for living there," Hodge said.

One East Bay taxpayer, Noel Salvador, an information technology worker, said he and other average taxpayers cough up plenty in taxes already.

"I'm paying more than enough," said Salvador, a Dublin resident. "The tax breaks aren't there for me. I have two kids in college and because I'm middle class, I don't qualify for financial aid or grants."

The differing views put in the spotlight an increasingly intense debate that centers not only on taxation, but also spending in the Golden State.

Californians are over-taxed, according to a blunt opinion from Lawrence McQuillan, director of business and economic studies with the nonpartisan Pacific Research Institute. McQuillan said the real problems are that California politicians cannot control their appetite for providing services.

"We are living well beyond our means," McQuillan said. "Maybe the question is how to scale back spending so we all pay less in taxes."

So who does have the worst tax burden? The budget project believes the real problem lies with taxes that people cannot mitigate or defer through deductions or tax breaks.

"California has one progressive tax, which is the income tax, and two regressive taxes, which are sales and excise taxes," Gardner said. "The progressive income tax is not enough to offset the basic unfairness of those two regressive taxes."

Still, those taxes are dwarfed by the effect of income tax payments in California, Hodge said. He said the Franchise Tax Board's annual reports show the upper 5 percent of earners are responsible for the vast majority of the tax liability.

In 2004, the most current year available, the top 5 percent of California income earners paid 64 percent of the tax liability. The bottom 80 percent of earners paid 13 percent of the tax liability. The bottom 40 percent produced 0.6 percent of the liability, the Franchise Tax Board reported. In the past five years, the top 5 percent of earners have carried a rising share of the California tax liability.

And 56 percent of California taxpayers with adjusted gross incomes of $50,000 or less had no state income tax liability after the effects of deductions and credits, tax board figures show.

"The rich carry a disproportionate share of the tax burden, not only in California, but the entire nation," Hodge said. "And a disproportionate share of government spending is targeted to low-income people relative to what they pay in taxes."

George Avalos covers the job market, insurance and banks. Reach him at 925-977-8477 or gavalos@cctimes.com.