In a recent interview, California Governor Gavin Newsom stepped into the “belly of the beast,” so to speak, with Fox News pundit Sean Hannity.
And in during his appearance, Governor Newsom claimed:
“The American people don’t know this. We have the highest tax rate for the 1%, but middle-class families actually paid less than the majority of states in America in California,”
California, The Middle Class + Income Taxes
For those in the know, only New York has higher state income taxes than California. And if you’re like most California taxpayers, your annual State Franchise Tax Board bill seems pretty steep.
But income taxes also affect people differently depending on your tax bracket. Considering these competing factors, how accurate is the Governor’s claim?
From a certain perspective, it could be said that income, sales + excise, and property taxes levied on middle class Californians are less than in many states.
But how is Governor Newsom defining California’s middle class? And is he framing tax liabilities as a measure of average rates or the amount paid?
If combined state and local taxes are gauged relative to household income, Newsom’s position is correct because comparable rates are lower. But Newsom’s tax narrative gets murky when you consider that income and property values are higher in California, forcing folks to pay more of their annual income to cover taxes.
How is the “Middle Class” Defined in California
According to Institute on Taxation and Economic Policy, California’s “Middle Class,” defined as earning $39,100 to $62,300, pay just over 8% in combined state and local income, property, and sales + excise taxes.
And this marks California with the country’s 11th-lowest tax liability for the middle income bracket.
But is the $39,100 to $62,300 bracket a true measure of the “middle classes?” This range seems relatively low relative to a 2022 Gallup poll that showed a majority of Americans who identify as “middle class” consider an annual household income of $85,000 necessary to reasonably “make do.”
Additionally, California’s Median Household Income clocked in at $81,575 in 2021. A factor that resets California with the country’s 21st-lowest tax liability. This is partly because taxes jump considerably for those above the $39,100 to $62,300 income bracket.
The Impact of California’s Tax Liabilities Are Different Than Other States
The higher overall cost of living in California has increased average annual salaries. But because Californians pay more for goods, services, and real estate than residents of many other states, more of your income goes to living expenses.
Yet, those in Californian’s median tax bracket are taxed higher than residents in other states with a lower average cost of living.
California has managed to keep property taxes down, due mainly to Proposition 13, which caps property tax increases. But the median home price in California is $815,340, while the medium home price nationwide is $436,800.
That means Californians pay nearly double for homes, yielding higher annual property tax bills than most other states.
In short, everything costs more in California, and the higher wages to offset those costs are taxed more, leaving Californians with less of their annual income than other state residents.
Need Help With Tax Planning?
Regardless of which tax bracket you land in, proper tax planning is the best way to manage your tax liability. By evaluating your finances, seeking adequate shelters, and smart investing, we can significantly minimize your tax liabilities.
If you’re interested in tax planning for the 2023 fiscal year and beyond – Get in touch for a FREE consultation!
