Taxifornia

California’s tax system, comparisons with other states, and the path to reform in the Golden State

San Francisco—The Pacific Research Institute (PRI), a free-market think tank based in San Francisco, found that California ranked dead last in a combined measure of the state’s tax burden and tax structure according to the newly released study, Taxifornia. It is the second study in the California Prosperity series, a PRI project to evaluate California’s economic performance relative to other states.

• California ranked 47th out of the 50 states in total burden of government—a calculation of state and local government spending as a share of the state’s GSP.
• California ranked 45th in tax structure—a measure of the structure of five major taxes – personal income tax, corporate income tax, capital-based taxes, sales taxes, and property taxes. California has the highest sales tax rate and poorest designed personal income taxes in the nation.

“California has almost systematically implemented tax policies that discourage work effort, investment, and entrepreneurship, which are all the bedrock of a prosperous society,” said Jason Clemens, PRI director of research.

“The solution to California’s economy can’t be more government spending and higher tax rates, since these are already among the highest in the nation,” added co-author Robert Murphy, Ph.D. and PRI senior fellow in Business and Economic Studies. “Policy makers must break out of this fiscal rut through a genuine commitment to shrinking the size and scope of the state and local government.

“California must reform and modernize its tax system with an eye towards encouraging economic growth,” concluded Mr. Clemens. “This means increasing our reliance on consumption taxes like the sales tax while decreasing our use of costly and damaging taxes like personal and corporate income taxes. In addition, California must permanently reduce spending in order to permanently reduce the burden of government. Smaller, smarter government is the solution for California.”

Taxifornia is the second installment of a multiyear project by Jason Clemens and Robert P. Murphy, Ph.D., that aims to explain to Californians the underlying problems plaguing the economy and, more important, the solutions to these problems. The complete report may be downloaded at https://www.pacificresearch.org/docLib/20100414_taxifornia.pdf.