Sunday, March 8, 2009

Moving to California = Tax Cut?

Just finished completing my California state income taxes for the first time after moving here from Maryland in spring 2008. Although my marginal tax rate (on my last $ of income) is higher in California (9.3% vs. 7.6% in MD), my total tax bill is about $2000 less in California than I paid on comparable income in Maryland in 2007. (My wife and I had a combined AGI in both years of around $150,000).

This the result of California's very progressive income tax (low tax rates at lower income levels), whereas Maryland's income tax is nearly a flat rate. Interestingly, both state's just increased income taxes. California's tax increase was across the board, whereas Maryland just increased tax rates on the highest incomes, making their new tax code more like California.

My rough estimate of the break even point between the two states is between $200k and $250k(for married couple filing jointly). So, if you earn less than $200,000 per year, you will pay less income tax in California; but very high income people will pay more in California. Of course, this is a comparison of two high tax states. I doubt my taxes would have gone down if I were to move from most other states.

The most recent tax increases will boost my CA income tax bill by about $1000 (assuming the 0.5% increase and the loss of $420 in child tax credits). It reduces my California advantage, but my family is still paying less here than on the east coast.

3 comments:

  1. Breaking Bad: California vs. the Other States
    by Richard Rider, Chairman, San Diego Tax Fighters
    Version 1.4 Revised 15 May, 2009
    Phone: 858-530-3027 RRider@san.rr.com

    Here’s a depressing comparison of California taxes and economic climate with the rest of the states. The news is breaking bad, and getting worse:

    California has the 2nd highest state income tax in the nation. 9.55% at $48,000. 10.55% at $1,000,000

    By far the highest state sales tax in the nation. 8.25% (not counting local sales taxes)

    Highest state car tax in the nation – at least double any other state. 1.15% per year on value of vehicle.

    Corporate income tax rate is the highest in the West. 8.84%

    2009 Business Tax Climate ranks 48th in the nation.
    http://www.taxfoundation.org/research/topic/15.html

    Fourth highest capital gains tax 9.55%
    http://www.thereibrain.com/realestate-blog/capital-gains-tax-rates-state-by-state/109/

    Third highest gas and diesel tax in the nation (at $2.00 a gallon price). At $3.00 a gallon, we are numero uno.
    http://www.api.org/statistics/fueltaxes/

    Fourth highest unemployment rate in the nation. (March, 2009) 11.2%
    http://www.bls.gov/news.release/laus.nr0.htm

    California’s 2009 “Tax Freedom Day” (the day the average taxpayer stops working for government and start working for oneself) is again the fourth worst date in the nation – up from 28th worst in 1994.
    http://www.taxfoundation.org/research/show/387.html

    1 in 5 in LA County receiving public aid.
    http://www.latimes.com/news/local/la-me-welfare22-2009feb22,0,4377048.story

    California prison guards highest paid in the nation.
    http://www.caltax.org/caltaxletter/2008/101708_fraud1.htm

    California teachers easily the highest paid in the nation.
    http://www.nea.org/home/29402.htm

    California now has the lowest bond ratings of any state, edging out Louisiana.
    http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/03/19/BA7F16JLKH.DTL

    California ranks 44th worst in “2008 lawsuit climate.”
    http://www.instituteforlegalreform.com/component/ilr_featured_tools/29/item/LAI/19.html

    In 2005 (latest figures), for every dollar Californians sent to D.C. in taxes, we got back 78 cents – 43rd worst.
    http://www.taxfoundation.org/taxdata/show/22685.html

    America’s top CEO’s rank California “the worst place in which to do business” for the fourth straight year (3/2009). But here’s the interesting part – they think California is a great state to live (primarily for the great climate) – they just won’t bring their businesses here because of the oppressive tax and regulatory climate.
    Consider this quote from the survey (a conclusion reflected in the rankings of the characteristics of the state): “California has huge advantages with its size, quality of work force, particularly in high tech, as well as the quality of life and climate advantages of the state. However, it is an absolute regulatory and tax disaster.”
    http://tinyurl.com/cyvufy

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  2. You want more of this? I've GOT more of this!

    With 12.1% of the nation’s population [36,756,666 divided by 303,824,640], in February, 2009 California was responsible for 20.9% of the newly unemployed. To state it differently, in February California’s percentage growth in UNemployment was 72.7% above the national average.
    http://www.bls.gov/news.release/mmls.htm

    California, a destitute state, still gives away college education at fire sale prices. Our community college tuition is by far the lowest in the nation. How low? The average national community college tuition is 4.5 times higher than California CC’s. This ridiculously low tuition devalues education to students – resulting in a 30+% drop rate for class completion. In addition, many California CC students fill out a simple form that exempts them from ANY tuition payment at all.
    http://www.sacbee.com/static/weblogs/capitolalertlatest/020722.html

    On top of that, California offers thousands of absolutely free adult continuing education classes – a sop to the upper middle class. In San Diego, over 1,400 classes for everything from baking pastries to ballroom dancing are offered totally at taxpayer expense.
    http://www.sdce.edu

    California residential electricity costs an average of 28.7% more than the national average. For industrial use, CA electricity is 48.6% higher than the national average (11/08).
    http://www.eia.doe.gov/cneaf/electricity/epm/table5_6_a.html

    It costs 38% more to build solar panels in California than in Tennessee – which is why European corporations have invested $2.3 billion in two Tennessee manufacturing plants to build solar panels for our state.
    http://www.foxandhoundsdaily.com/blog/jack-stewart/more-solar-companies-producing-elsewhere-sell-california

    Consider California’s net domestic migration (migration between states). From April, 2000 through June, 2008 (8 years, 2 months) California has lost a NET 1.4 million people. The departures slowed this past year only because people couldn’t sell their homes.
    http://www.mdp.state.md.us/msdc/Pop_estimate/Estimate_08/table5.pdf
    These are not welfare kings and queens departing. They are the young, the educated, the productive, the ambitious, the wealthy (such as Tiger Woods), and retirees seeking to make their pensions provide more bang for the buck. The irony is that a disproportionate number of these seniors are retired state and local government employees fleeing the state that provides them with their opulent pensions – in order to avoid the high taxes that these same employees pushed so hard through their unions.

    As taxes rise and jobs disappear, we lose our tax base, continuing California’s state and local fiscal death spiral. This spiral must stop NOW.

    NOTE: If you would like to receive my free periodic “Richard Rider Rant” e-newsletter with more of this type of information and analysis, just drop me an email at RRider@san.rr.com. To see the latest version of this “Breaking Bad” column, plus samples of my free “Richard Rider Rant” e-newsletter, go to my blog at http://www.RichardRiderRant.blogspot.com/.

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  3. Richard,

    This post was just about my income tax bill, and I noted that I moved from another high tax state.

    Nor did I comment on government services. Overall, I found the quality of public services to be better in Maryland in most, but not all areas. I was a state employee in MD, and I agree the salaries and retirement benefits in the public sector were lower there.

    Jeff

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