Kiplinger: CA taxes highest — and state hostile to retirees, too

by Chris Reed | August 27, 2014 8:00 am

Over the years, when I’ve reported that the nation’s CEOs continue to rank California as the most anti-business state in the country, I’ve gotten some blowback in emails and comments that question whether the ranking was manipulated. This is goofy paranoia — the suggestion by CA Dems and labor types that national surveys are manipulated by … someone … to make the Golden State look bad.

Now we have a new independent analysis that makes California look horrible whose sponsor can have its motives impugned. It’s Kiplinger, the business website that has millions of followers from its pre-Internet days as publisher of smart, common-sense newsletters and magazines on investments and personal finance.

Kiplinger’s verdict: CA is worst of all[1] when it comes to tax burdens on individuals:

State income tax: 1%-13.3%

State sales tax: 7.5%

Gas taxes and fees: $0.50 per gallon (National average is $0.31)

The Golden State is home to movie stars, beautiful beaches, Silicon Valley… and the highest income tax rates in the U.S. Rates range from 1% on taxable income of up to $7,582 for individuals ($15,164 for married joint filers) to 13.3% for individuals or married couples with taxable income of more than $1 million.

California’s state sales tax increased from 7.25% to 7.5% on Jan. 1, 2013. (The rate hike is scheduled to expire at the end of 2016.) Then there are local sales taxes in cities and counties with special taxing districts; in some cities, the combined rate is 10%. Food and prescription drugs are exempt.

California also imposes the highest gas taxes in the U.S as well as an annual vehicle license fee (VLF) of 0.65% of the purchase price of the vehicle (or the value when it was acquired) that’s reduced each year for the first 11 years of car ownership. For example, the VLF on a two-year-old vehicle purchased for $25,000 would be $147.

There is a bit of (relative) relief: Californians pay lower property taxes than residents in other high-tax states. Under the homestead program, the first $7,000 of the full value of a homeowner’s dwelling is exempt. But real estate is expensive. The median property tax on the state’s median home value of $384,200 is $2,839, according to the Tax Foundation.

California also hostile to retirees

In what paranoids will see as a bonus bashing, Kiplinger’s website also features an analysis that concludes CA is horrible for retirees. It doesn’t break down the 1 to 10 spots, but it says the Golden State is among the 10 worst states[2] for people in retirement.

The Bottom Line: NOT TAX-FRIENDLY

One of Kiplinger’s top ten least tax-friendly states for retirees, the Golden State is a retiree’s tax nightmare. Although Social Security benefits are exempt, all other forms  of retirement income are fully taxed.

California residents pay the highest income taxes in the U.S. The statewide sales tax is high, too. Real estate is assessed at 100% of market value.

State Sales Tax

The state sales tax increased to 7.5%, from 7.25%, as of January 2013. (The rate hike is temporary and is set to expire at the end of 2016.) Rates are higher in cities and counties with special taxing districts; with the addition of local taxes, the total can reach 10% in some cities. (Food and prescription drugs are exempt.)

Income Tax Range

Low: 1% (on up to $14,910 of taxableincome for married joint filers and up to $7,455 for those filing individually)

High: 13.3% (on more than $1 million for married joint filers and for those filing individually)

Social Security

Benefits are not taxed.

Exemptions for Other Retirement Income

Retirement benefits are exempt. All private, local, state and federal pensions are fully taxed. There is a 2.5% state penalty on early distributions from retirement plans, annuities and IRAs.

Property Taxes

Property is assessed at 100% of market value. The maximum amount of tax on real estate is limited to 1% of assessed value. Note, though, that property is generally only reappraised when it changes ownership or has new construction (a property’s assessed value is typically equal to its purchase price adjusted upward each year by 2%). Under the homestead program, the first $7,000 of the full value of a homeowner’s dwelling is exempt. Median property tax on the state’s median home value of $384,200 is $2,839, according to the Tax Foundation.

Tax breaks for seniors

The Homeowner Assistance program, which provided property-tax relief to people who were blind, disabled or at least 62 years old and met certain minimum annual income thresholds, has been halted and has not been funded by the state in recent years.

Inheritance and Estate Taxes

There is no inheritance tax or estate tax.

So when it comes to taxes, it’s bad to be an earner in California. And it’s bad to retire here. But at least residents can rest comfortably knowing that public employees don’t have to fret about how they’ll make ends meet in their retirement.

Source URL: https://calwatchdog.com/2014/08/27/kiplinger-ca-taxes-highest-and-state-hostile-to-retirees-too/

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