The California tax structure is fairer than the US federal structure in one aspect – capital gains are taxed the same as ordinary income, not the same tilt toward the rich.  However, older (generally richer) property owners pay little property tax compared to other states, shifting the burden to income tax.  The income tax system is progressive, with most income tax revenues coming from the rich.  In 2004 taxpayers earning annual incomes of $200,000 or more accounted for about 5 percent of returns but more than 55 percent of revenue (Legislative Analyst's Office - California Tax System: A Primer (2007).  However, the rates max out at lower income levels compared to the US tax brackets.  The Calif. top bracket (excluding the 1% surcharge on income over $1million) is 9 times more than the bottom bracket, compared to 3.5 times more federally.  But middle class couples making over $87,000 pay the same percentage as the rich.

The problem is the volatility - the income and capital gains of the rich swing wildly from year to year. Education makes up half the budget. Schools used to get most of their revenue from relatively stable property taxes. But after Proposition 13, schools get most of their funds from the state, which depends on highly variable income, capital gains (stock) and sales taxes. Thus, the amount of revenue varies dramatically with the economy. Reasonable efforts to modify Proposition 13 to exclude corporate landowners and high income homeowners from its limits have gone nowhere.

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