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California Counties See Tax Shrinkage

California Ranks Last on States Tax List

California Ranks Last in Yet Another Survey

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Grace Hagman,
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Jeanna Pomierski,
Field Representative
November 2010

California Counties See Tax Shrinkage


Assessed property values in California are likely to decline for the second year running, according to a Bond Buyer review of data from the state’s larger counties. Even though the state’s tax assessment system has the effect of muting the volatility of property assessments, 11 of the state’s 12 largest counties (including San Bernardino County) experienced a decline in their property tax roll this year.

County assessors are required to provide property assessments as of Jan. 1, and deliver a report on their tax rolls by summer. Final figures on the tax rolls of all 58 counties will be tallied in late summer or early fall by the state’s Board of Equalization.

A review of early figures from the state’s biggest 12 counties — accounting for more than 78% of the state’s overall 2009 tax roll — indicates that the statewide roll will drop for the second year running. Last year’s final statewide tax roll was down 2.4% — the first year-over-year decline since statewide record keeping began in 1933, according to the Board of Equalization.

This year, the 12 largest counties are down 1.8%, according to data collected from 11 assessors’ offices. In the 12 counties surveyed, the tax roll was down about $62.7 billion, translating into a minimum of $627 million less in property taxes at the state’s basic 1% rate. The decline in local property tax collections has an impact on state government as well, because the state guarantees a minimum per-student spending level for K-12 education.

For most school districts, that guarantee already exceeds their property tax receipts, so lower property tax collections mean the state has to pay more to make up the difference. The tax roll figures being announced this summer measure assessed valuations as of January 1, 2010. They will affect property tax bills that are due in November 2010 and February 2011.

California Ranks Last on States Tax List

California is tied for last place on a recent study of how and what states tax. The report, entitled “Taxifornia,” is part of the California Prosperity Project by the Pacific Research Institute, a nonprofit, free-market advocate organization based in San Francisco. It assesses California’s tax burden, the structure of its tax system, and how they affect the state’s competitiveness.

Taxifornia takes a different approach in analyzing states’ tax structure and illustrates that no matter how you slice and dice the data, California is a high-tax state.

Here are the top 5 states, based on a 10-point scale (10 being the best):
  1. South Dakota, 8.8
  2. Delaware, 8.6
  3. Texas, 7.7
  4. Louisiana, 7.7
  5. Nevada, 7.6
Here are the bottom 5 states:
  1. California, 3.1
  2. South Carolina, 3.1
  3. New York, 3.1
  4. Vermont 3.3
  5. Alaska, 3.3
Too many politicians and bureaucrats have forgotten that taxes change the incentives for people to work hard, save, invest and be entrepreneurial, the bedrock of a prosperous society.

This study measures two different but inter-related aspects of taxes: the total amount and the mix of taxes used by calculating 3 measures of taxation:
  • burden
  • structure
  • overall or composite
On burden of state taxes, California ranks 47th — state and local spending accounts for 18.3% of the state’s economy — behind Alaska (20.2% of that state’s economy), South Carolina (19.4%) and New York (18.4%).

California ranks last in personal income taxes, scoring 1.1 on a 10-point scale. The corporate income tax is less burdensome on the PRI scale, scoring 6.1 and ranking 34th. (The majority of businesses pay personal rather than corporate taxes because they are sole proprietors, partnerships, limited liability companies or S-corporations.) “If policy makers want to understand why the Golden State’s economy is lagging behind those of other states, the punitive and steeply progressive personal income tax is a good place to start looking,” the report says.

In the mix and design of its major taxes, which include personal and corporate income taxes, capital-based taxes, sales taxes, and property taxes, California ranks 45th in the country. The report also emphasizes that California’s performance does not exist in a vacuum.

The Report goes on to say, “Whether we are considering other Southwestern states or other West Coast states, only Washington performs anywhere near as poorly as California in terms of burden of government and tax structure. Businesses and entrepreneurs are sensitive to taxes, and California is simply not tax-competitive with its neighbors.”

“Not only is California a high-tax state—as everyone already knew—but it is also an inefficient-tax state, perhaps equally troubling,” the report says.

From one point of view, though, California’s rank of 45th on the tax structure side is good news. It means that through sensible tax reform, economic growth can be fostered along with job creation, without the need for sacrificing tax revenues to state and local governments. This means shifting from costly income taxes, both personal and corporate, to consumption taxes. Of course, once the low-hanging fruit of efficient tax reform has been plucked, further incentives for private-sector growth will have to come through reductions in California’s total tax burden, currently the fourth-highest in the nation. California should simultaneously pursue tax reform and tax reduction.

California Ranks Last in Yet Another Survey

Chief Executive Magazine recently conducted its annual survey of CEOs to determine the best and worst places to do business in the United States for 2010. California came in last among the fifty states and Washington D.C. as a place to do business, underscoring the weakened competitive position of the state. A distinction it has now held for six straight years. The survey asked business leaders to rank states based on taxation and regulation, quality of workforce and living environment.

Despite its favorable climate, California rated lowest in the survey due to high taxes and heavy regulations, high unemployment rate and heavy union presence. Income tax rates run as high as 10 percent for top earners, and many of those tax dollars go to benefits for California's swelling number of government employees, with $500 billion in unfunded pension and health care liabilities for state workers. And unions are growing - from 16.1 percent of workers in 1998 to 17.8 percent in 2002.