In multiple segments on Fox News, reporter William La Jeunesse wrongly suggested that top earners in California would face an effective tax rate of 52 percent if plans by Governor Jerry Brown and President Barack Obama were implemented. Fox's calculation is based on a simple addition of top tax rates, which ignores key details of U.S. and California tax codes to provide an inflated rate.
On America's Newsroom, La Jeunesse claimed that if both tax plans were approved, “California's wealthy would pay 52 cents of every dollar earned in income taxes.” From America's Newsroom:
Later, on Happening Now, La Jeunesse repeated the figure:
While both President Obama and Governor Brown have proposed increasing the rate on top income earners to 36.9 and 13.3 percent, respectively, Fox's claim that their plans would lead to an effective 52 percent tax on the highest income earners is misleading. It appears that the figure is calculated by simply adding state and federal tax rates. However, this method ignores two key points -- state income tax is deductible from federal taxable income, and both California and federal tax rates are progressive, applying different rates to different income brackets.
To illustrate the extent to which Fox exaggerates these numbers, Media Matters did some calculations of its own. Using progressive tax rates currently in place in California and the federal government, along with the proposed changes made by Brown and Obama, Media Matters constructed a simple effective tax rate for a California resident earning $2 million in income.
Based on the California tax rates, we estimate that under Jerry Brown's proposed tax plan, a $2 million earner would pay approximately $242,856 in state taxes. This amount is deducted from taxable federal income, bringing it down to $1,757,144. Under President Obama's tax plan, total federal taxes would amount to approximately $652,803 for a total state and federal tax bill of $895,659.
Based on these calculations, the effective tax rate for a person who earns $2 million in California is about 44.8 percent, well below Fox's inaccurate figure of 52 percent. The above calculation, of course, is not entirely representative of the tax burden felt by a high income earner, as it does not account for other factors such as local taxes and itemized deductions that could increase or decrease the effective tax rate. However, preliminary analysis suggests that Fox's incorrectly calculated and consistently reported 52 percent is an overestimate.