Tax Rascal

California Taxes: More Than Sticker Shock

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California Taxes: More Than Sticker Shock

Californians pay the highest sales tax in the nation. Their top-bracket earners have the second-highest income tax rate in the country. The middle class to upper class — those making $48,000 to $1 million — are right up there among the most highly taxed, too. California’s gas tax, at 35.3 cents per gallon, is third-highest in the nation. Corporations face the highest tax rates in the West.

California is famous for having high taxes, but they’re still a subject of perennial debate. Outside of California, the facts are pretty stark: state residents take home less of their paychecks than almost anyone else, and more gets taken out of the after-tax money they spend. Add that to the generally high cost of living, and the situation looks pretty awful.

But one of the reasons Californians can stand it is that their state is not too shabby in the spending department. Great schools like Caltech, Berkeley, and Stanford mean that the state has a well-educated population with an emphasis on technology. Add that to the state’s formerly red-hot property market, and you can see why they were spending so much: they were making lots of money, too!

As with all high-tax situations, the real question is how much people pay, not the “sticker price” on their tax returns. California has a reputation for being pretty trigger-happy with deductions:

“California has relatively high tax rates, but it’s because we have a loophole-ridden tax system,” said Jean Ross, director of the California Budget Project. “If we had fewer loopholes for the rich, we could have lower tax rates. (Resisting tax increases) is really a smoke screen for saying we believe government ought to do less for education, children and health care.”

That’s certainly not a fair accusation (the state’s freethinking reputation aside, there aren’t many anti-education, anti-children people in California). But it does make a good point: California’s property taxes, for example, have been kept artificially low for some time. This fueled the real estate boom, but it also meant that the state had to find other ways to get the revenue most states get from taxing homes.

California’s tax muddle makes it increasingly clear that the numbers we talk about aren’t always the ones that matter. High tax rates don’t mean much if loopholes soften the blow, and high spending is not such a problem if it’s spending that boosts the economy.

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