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Sunday, July 16, 2017

Are California taxes high?

California State Sales Tax Rate Breakdown. Most cities also have sales tax making the total rate higher,
such as 9.25% in San Jose.

Are California's taxes high? I was asked this question recently by a reporter with Politifact California. Assemblymember Travis Allen who is running for governor had stated that California had the highest taxes. His website says that California has the highest personal income tax and state sales tax rates. [Chris Nichols article of 7/11/17]

If just looking at the rate structure, those are correct statements. The Federation of Tax Administrators posts helpful and current tables of the PIT and sales tax rates among the states.

So far as the California personal income tax though, less than 5% of individuals are at the highest rate of 13.3%. Many Californians owe little or no state income tax because the exemptions in California are fairly high.

But, everyone pays the sales tax, directly and indirectly.

When a state has high tax rates, it is due to two possible reasons (and perhaps both at the same time):
  1. A narrow tax base
  2. Lots of spending
A narrow tax base is certainly the reason for California's high sales tax rate. We only tax tangible personal property and then not even all of that. We tax almost no personal services, entertainment or digital goods. This also makes the tax system inequitable, non-neutral and inefficient because the exempt consumption tends to be that of higher income individuals.

What do you think?

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