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The fiscal cliff & the unfairness of being Californian

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POSTED December 30, 2012 9:40 p.m.

Getting a bit antsy about the fiscal cliff?

You should be.

Politicians and the high-brow media have us all focusing on “the rich.”

But no matter how you shift the deck chairs, it won’t change the fact that if you are living in California and aren’t Larry Ellison you’re still trapped in Third Class on the Titanic if and when we start to go down the fiscal cliff.

Real tax fairness for most Californians - and for residents in other high cost-of-living states such as New York - isn’t as much about the income level Uncle Sam taxes us at as it is about the lack of regional indexing.

A person earning $35,000 who works and lives in San Joaquin County has a cost of living that is 35 percent higher than in Mobile, Alabama. Someone in Mobile making $22,737 a year would have the same standard of living as someone making $35,000 a year in Manteca. That difference, by the way, isn’t really covered by higher wages here. Based on data on sites such as Salary.com and even the U.S. Department of Commerce, salaries across the board for the same jobs are 17.9 percent higher here than in Mobile. That means you have a $2,319 annual deficit each year living here compared to Mobile.

The cost of living calculators don’t take into account taxes. Forget the fact California has a higher elixir of taxes - sales, property, users’ fees, and such - than Alabama. That’s apples and oranges. What Uncle Sam sticks you for is apples to apples.

Remember that making $35,000 in Manteca is the equivalent of $22,737 in Mobile. Assume you’re single. That means you get a $5,700 personal deduction. That makes your taxable income in Uncle Sam’s eyes $29,300 in Manteca and $17,037 in Mobile.

That translates into a $3,966 federal income tax liability in Manteca and a $2,129 federal tax liability in Mobile for the same standard of living. That is essentially a $1,837 federal tax penalty.

Talk all you want about tax fairness between those making more than $250,000 and everyone else. Despite all the ballyhoo and the impact of tax credits and deductions that you and I could never take advantage of, the majority of folks making more than $160,000 based on IRS data pay a higher percentage of their income to taxes. Whether it should be more than the current gap is a legitimate debate.

But when the question is straight-across-fairness, the real issue is how the cost-of-living isn’t indexed based on wide gaps between various regions of this country.

Given the complexity of the federal tax code, coming up with 300 or so different income adjustment formulae based on where you reside should be a walk in the park.

Instead of addressing the real unfairness of how the vast majority of people are taxed in this country, the power structure has very neatly framed it as a class warfare issue.

That’s nice except for one little detail. The politicians framing the debate all make a minimum of $174,000 a year. Media elite - the talking heads on cable, anchors and high profile network reporters - along with the Wall Street types offering commentary and doing the heavy lobbying regarding taxes make significantly more. Toss in the fact said the vast majority of politicians and their compadres in the private sector have additional income from outside sources and most of them are making significantly more than you and I could ever imagine.

If we buy into the fairness hype around the fiscal cliff debate and we happen to live in higher cost-of-living areas such as most of California, we are basically agreeing to have the noose around our wallets tightened even more compared to taxpayers elsewhere.

 

This column is the opinion of managing editor, Dennis Wyatt, and does not necessarily represent the opinion of The Bulletin or Morris Newspaper Corp. of CA. He can be contacted at dwyatt@mantecabulletin.com or 209-249-3519.

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