A recent study conducted by the Institute on Taxation and Economic Policy (ITEP) reveals that California may not actually be as high-tax as it is often perceived to be. According to the study, Californian families with annual incomes of $145,900 or less had overall tax burdens near the national average. As income increases, so does the tax burden, with the next 15% of earners in California facing a state tax rate of around 10.8%. However, for the bottom 40% of earners, California’s tax system is more beneficial compared to states like Texas and Florida.
The study also highlights that the bottom 20% of income earners in California, those making less than $25,200, will pay 11.7% in taxes, slightly higher than the national average but lower than states like Texas and Florida. WalletHub has echoed similar findings, reporting that the annual state and local taxes for a median California household rank ninth highest in the country, while Texas and Florida rank 32nd and 45th, respectively. The main components of the tax burden include property taxes, individual income taxes, and sales and excise taxes.
California can be considered a low-to-moderate-tax state in various ways, mainly related to real estate. While homeowners in California pay high property taxes in absolute dollars, Prop 13 caps the annual increase at two percent, making it more manageable. Additionally, new rules under Prop 19 allow homeowners aged 55 or older to transfer their home’s tax base up to three times, potentially saving them thousands of dollars in property taxes. The high cost of living in California is also a factor to consider when evaluating the overall tax burden for residents.
The study also reveals that the vast majority of state and local tax systems in the U.S. are regressive, requiring low- and middle-income families to pay a greater share of their income in taxes compared to wealthy families. States with regressive tax structures, such as Florida, Washington, and Texas, impose higher tax rates on low-income families. In contrast, states with lower taxes for high-income earners tend to have higher taxes for low-income residents, indicating a broader pattern of tax inequality across the nation.
Ultimately, the decision to reside in California or any other state depends on individual financial goals, the cost of living, and the ability to thrive in that environment. While California may have a reputation for high taxes, the study suggests that the tax burden for many middle-to-lower-class earners in the state may not be as extreme as commonly believed. As the debate around tax policies continues, understanding the distribution of tax burdens across income levels is crucial in crafting equitable tax systems that benefit all residents.
