With Californians preparing their state and federal taxes, it’s a challenge knowing that California’s 13.3% rate is the highest marginal tax rate in the nation.
When you add in up to 37% federal taxes, living in California is expensive right off the top, and especially now that we cannot deduct state taxes against the federal.
Prop. 30 was then-Gov. Jerry Brown’s personal income tax increase on high-income earners of more than $250,000 passed in 2012. California lawmakers and governors rely on California’s wealthiest for state income, but this is prone to boom-and-bust cycles.
Prop. 30 created four high-income tax brackets for taxpayers with taxable incomes exceeding $250,000, $300,000, $500,000 and $1,000,000. This increased tax was “temporary,” set to be in effect for seven years, until Brown pushed Prop. 55, which extended this temporary tax by twelve years.
Prop. 30 also raised California’s sales tax to 7.5 percent from 7.25 percent.
When Californians think of moving to a low tax or no tax state, one consideration is because of the high income taxes.
As the Tax Foundation explains, “Forty-three states levy individual income taxes. Forty-one tax wage and salary income, while two states—New Hampshire and Tennessee—exclusively tax dividend and interest income. Seven states levy no income tax at all. Tennessee is currently phasing out its Hall Tax (an income tax applied only to dividends and interest income), with complete repeal scheduled for tax years beginning January 1, 2021.”
“Of those states taxing wages, nine have single-rate tax structures, with one rate applying to all taxable income. Conversely, 32 states levy graduated-rate income taxes, with the number of brackets varying widely by state. Kansas, for example, imposes a three-bracket income tax system. At the other end of the spectrum, Hawaii has 12 brackets. Top marginal rates range from North Dakota’s 2.9 percent to California’s 13.3 percent.”
Tennessee has been phasing out its tax on investment income, with the rate dropping from 2 to 1 percent for 2020. By 2021, Tennessee will be among the states with no individual income tax.
“The state with the highest combined corporate income tax rate is Iowa, at 29.5 percent. Corporations in Alaska, California, Illinois, Maine, Minnesota, New Jersey, and Pennsylvania face combined corporate income tax rates at or above 28 percent. Six states—Ohio, Nevada, South Dakota, Texas, Washington, and Wyoming—face no state corporate income tax and only the federal tax rate of 21 percent,” Tax Foundation reported.