In Fiscal Year (FY) 2016, California collected $235 billion in state and local taxes—or $5,979 for every man, woman, and child. While this is an impressive sum of money, it tells us little about whether or not the average California taxpayer can afford this level of taxation?
To better answer this question, this analysis will calculate California’s tax burden relative to the private sector. Ultimately, it is the private sector that creates new wealth and income. A high tax burden means a state is hobbling its private sector relative to other states and reducing their long-run economic growth potential.
As shown in Chart 1, California’s state and local tax burden (tax collections divided by private sector personal income) was the sixteenth highest in the nation for FY 2016 at 14.9 percent—or 4 percent above the national average of 14.3 percent.
#California state and local #taxburden in FY 2016 was the 16th highest in the nation at 14.9%— 4% above US average of 14.3% http://bit.ly/2FX9C8F @keypolicydata #CApolitics #CAleg #CAsen #CAgov #PolicyData (click to tweet)
As shown in Chart 2, California’s tax burden has increased over time by 31 percent to 14.9 percent in FY 2016 from 11.3 percent in FY 1950.
To put California’s tax burden into perspective, let’s compare it to size of major industries in the state (as a percent of private sector income). As shown in Chart 3, California’s 14.9 percent tax burden is greater than these combined industries: manufacturing (9.3 percent) and construction (5.2 percent).
California’s high tax burden is driven by a high individual income tax burden (5.1 percent, 5th highest) and a high corporate income tax burden (0.6 percent, 12th highest). Of course, California’s high tax burden for these two taxes is driven by high marginal statutory tax rates with the 2018 top individual income tax rate at 13.3 percent (highest in the country) and the top corporate income tax rate at 8.84 percent.
Mitigating the high property tax burden has been a declining property tax burden which has fallen by -36 percent to 3.7 percent in FY 2016 from 5.7 percent in FY 1950. This drop was driven by the enactment of Proposition 13 passed in 1978. The impact was immediate with a drop in property tax burdens of 52 percent to 2.6 percent in FY 1979 from 5.4 percent in FY 1978.
Proposition 13 implemented (pdf) the following:
Some question whether Proposition 13 succeeded in its goal of limiting the growth in tax burdens over time. The Tax Foundation claims that Proposition 13 it just drove up other taxes such as the income and sales tax. Yet, tax burdens are still below what they were in FY 1978—14.9 percent in FY 2013 versus 18.1 percent in FY 1978. So it appears that California’s tax burden would have been much worse today if not for Proposition 13.
Of course, the tax burdens for local government can vary just as much as they do among the 50 states. As such, we have also calculated the local government tax burden for every county in California—this includes every taxing jurisdiction within the geographic county borders whether it is a city, a special district, or county government itself.
The 20 California counties with the highest local government tax burden include:
The 20 California counties with the lowest local government tax burden include:
Finally, don’t forget to watch our exclusive time-lapse video of state and local tax burdens over the last 66 years! See if your state has been above or below the national average?
Scott has nearly 20 years of experience as a public policy economist. He is the author, co-author and editor of over 180 studies and books. His professional experience also includes positions at the American Conservative Union Foundation, Granite Institute, Federalism In Action, Maine Heritage Policy Center, Tax Foundation, and Heritage Foundation.