Tax data show height of cliff in southern California

Jan 01, 2009 (North County Times - McClatchy-Tribune Information Services via COMTEX) -- NCBH | Quote | Chart | News | PowerRating -- Recently released data show how North County residents were cashing in on the final months of a decade-long economic boom, when their investments were soaring even as wages were beginning to moderate.

Income from interest, stock dividends and capital gains surged 21 percent from 2005 to $6.1 billion in 2006, according to data that the IRS compiled from tax filers in 45 North County ZIP codes. Wage and salary income grew at a modest pace that allowed workers to stay ahead of inflation.

The IRS data are two years old, but their release this autumn sheds more light on the sky-high prices of real estate and other assets that preceded -- or even caused, according to some economists -- a sharp economic downturn.

Workers in the region earned $19 billion, up 6 percent from 2005, according to their tax filings. Tax filers reported an average salary of $58,500, up 4 percent from $56,300 in 2005. San Diego County's inflation rate of 3.4 percent ate up most of that, according to other federal data.

North County residents reported $4.1 billion in capital gains in 2006, up 11 percent from 2005. The IRS data reflect the rising values of stocks more directly than local home appreciation because a taxpayer is usually able to exclude capital gains of up to $250,000 on the sale of his or her primary residence.

Even so, regional economist Marney Cox said the explosion in investment income reflects the values of real estate and other investments, which surged in 2006 but have since reversed, with dizzying effects for North County consumers.

"We were building up to the asset bubble" in 2006, said Cox, chief economist for the San Diego Association of Governments, a regional planning agency.

Cox said San Diego County residents' income from investment probably hasn't kept pace with wage growth for the last two years. That would square with figures from local cities, which showed stagnating sales of cars, restaurant meals and other taxable items in 2007 and declines in 2008.

Home values in North County have fallen by 30 to 40 percent since early 2006. The Standard & Poor's 500 index, which tracks the most widely held stocks on U.S. exchanges, has fallen by more than 40 percent since October 2007.

Across North County as a whole, taxpayers reported an average adjusted gross income of $77,021, a figure that includes salaries and most investment income, minus deductions for dependants, mortgage interest, charitable contributions and other items.

But the figures show wealth and incomes varying widely from one community to the next. Residents of Oceanside and Camp Pendleton took in an average $44,700, while the average resident of neighboring Carlsbad earned $94,800.

The IRS data also show:

--Rancho Santa Fe residents had the highest adjusted gross incomes in North County, $577,000 on average. About 28 percent of that was from wages, while 41 percent was from capital gains and 7 percent from dividend payments.

--San Marcos and Ramona might be considered North County's most middle-class communities. Average income was $58,800 in San Marcos's two ZIP codes and about $65,000 in Ramona. Nearly half of the residents in the two areas earned between $25,000 and $100,000, with relatively few earning more or less. In most North County communities, 40 to 45 percent of residents were in the middle bracket.

--Income was also spread fairly evenly among Pala residents, many of whom receive distributions from the Pala tribe's casino. Nearly half of Pala residents reported adjusted gross income between $100,000 and $200,000, though a fairly large slice also reported incomes ranging from $10,000 to $25,000.

--Income inequality was relatively high in Poway, Valley Center, Pauma Valley and Bonsall. Cox said rural areas tend to accommodate large estates for wealthy families alongside a scattering of smaller bungalows and trailers for those with less money. Cities' more standardized services, in contrast, tend to attract developers who build hundreds of similar and comparably priced houses on large tracts.

To see more of the North County Times, or to subscribe to the newspaper, go to http://www.nctimes.com. Copyright (c) 2009, North County Times, Escondido, Calif. Distributed by McClatchy-Tribune Information Services. For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

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