In his recent State of the State address, Governor Gavin Newsom made a bold claim: “Here’s the truth Republicans never tell you: California is not a high tax state.” This assertion, while partially accurate, requires deeper examination to fully understand the nuances of California’s tax system.
California’s tax system is progressive, meaning that the more an individual earns, the higher their tax rate. For high-income earners, California indeed resembles a high-tax state. This progression in tax rates is designed to ensure that wealthier residents contribute a fairer share to the state’s revenue.
For residents driving gasoline-powered vehicles, California is unquestionably a high-tax state. Effective July 1, the state’s gasoline tax will increase to 59.6 cents per gallon, making it the highest in the nation. This tax hike impacts all drivers, regardless of income, adding to the state’s overall tax burden.
According to WalletHub’s 2024 tax analysis, California holds the highest individual income tax burden in the country. However, this statistic varies significantly when broken down by income levels. The Institute on Taxation and Economic Policy (ITEP), a liberal Washington-based research group, highlights that for the bottom 40% of earners (those making $48,000 or less), California’s taxes are actually lower than those in states like Florida and Texas.
The tax scenario changes as income levels rise. For families earning between $145,900 to $352,300, the tax rate in California is 10.8%, higher than the national average of 9.5%. In contrast, Texas residents in a similar income bracket pay 7.2%, while Floridians pay 6.4%.
California ranks fifth in the nation for overall tax burden, encompassing property, sales, and other taxes. While its sales and excise tax burden is relatively low, ranking 37th, its property tax burden is moderate, at 23rd in the nation. These rankings indicate a complex tax environment that affects residents differently based on their economic activities and asset holdings.
Governor Newsom contends that Republican-led states often provide substantial tax breaks to the wealthy, unlike California. “Catering to big business and the rich is also why red states tax their lowest earners far more than California does,” he stated. This assertion points to a broader debate about tax equity and economic justice.
Supporting Newsom’s claim, data reveals that the bottom 20% of earners in California pay 11.7% of their income in taxes, close to the national average of 11.4%. In comparison, the bottom 20% in Texas and Florida pay higher rates at 12.8% and 13.2%, respectively. This underscores Newsom’s argument that California’s tax system is more favorable to low-income earners.
For the wealthiest Californians, those in the top 1%, the tax rate is 12%, driven by the state’s top income tax rate of 13.3% for millionaires. This is significantly higher compared to Texas and Florida, where the top 1% pay 4.6% and 2.7% in taxes, respectively. Neither Texas nor Florida imposes a state income tax, which lowers their overall tax rates for the wealthy.
Nationally, the average tax rate for the wealthiest 1% is 7.2%. California’s higher rate for this group illustrates the state’s commitment to a progressive tax system aimed at reducing income inequality and funding extensive public services.
Governor Newsom’s address sheds light on the complexities of California’s tax structure. While the state imposes high taxes on the wealthy and gasoline consumers, it offers relatively lower tax rates for low to moderate-income families compared to some Republican-led states. These policies reflect California’s broader strategy of promoting economic equity and addressing income disparities through progressive taxation.
