Gov. Gavin Newsom recently proclaimed that “95% of Texans pay higher taxes than Californians.”
But is that true? Some Sacramento Bee sleuthing concludes that, well, Newsom’s statement cannot be independently verified.
Asked to provide a source for the assertion, Newsom’s office cited a 2018 study by the Institute on Taxation and Economic Policy, a liberal-leaning group.
But the group’s spokesman, Jon Whiten, told The Bee “We do not compute a specific percentage of Californians who pay less/more tax than Texans.” It did laud California as having the nation’s fairest tax system.
Newsom made his point at his budget news conference Tuesday.
“Our tax rates, again, are lower than the state of Texas,” the governor said. “I just want to remind everybody out there, 95% of Texans pay higher taxes than Californians.”
Newsom noted that while the state’s tax rates on the very wealthy are among the nation’s highest, “not everybody lives in that rarified world.”
Less income, less tax
The ITEP report found California had the nation’s most equitable tax system, and it cited Texas as the second most unfair, after Washington.
The study found that “many low- and middle-income families pay lower taxes under California’s moderately progressive tax system than they would under the highly regressive systems used to fund public services in Texas and the other more conservative states.”
The state’s tax system is relatively progressive, ITEP said, because of its graduated income tax rates, its additional tax on income over $1 million, and limits on tax breaks for upper-income taxpayers.
ITEP found that the top 1% of income earners in Texas paid an average of 3.1% in state and local taxes as a share of income. The top 1% in California paid 12.4%.
For the 40% of the highest earning people — those making $56,000 or more in Texas and $62,100 in California — the rates are higher in California, ITEP found.
ITEP has not updated the four-year-old study but Whiten said the study’s findings should generally hold, as neither state has enacted fundamental tax reform since it was published.
The crux of ITEP’s finding is that while California’s overall tax collections are higher than in Texas, the drastically different ways in which those two states raise revenue mean lower tax bills for many California families with moderate incomes.
California vs. Texas
Other studies have found that Californians on average pay more tax than Texans, though Whiten said those statewide averages largely reflect California’s higher taxes on affluent households.
California had the nation’s ninth highest tax burden, while Texas ranked 34th in a 2022 survey by WalletHub, a financial services site.
It compared property taxes, individual income taxes and sales and excise taxes, as a share of total personal income in the state.
In another study, the Tax Foundation, a conservative-leaning Washington-based research group, compared taxes paid by an individual with a $100,000 income in Texas and California suburbs.
The Texan paid $6,335 — no income tax, $5,027 in property tax and $1,620 in sales tax.
The Californian paid $11,946, which included $5,844 in income tax, $5,073 in property tax and $1,029 in sales tax.
“Texas is a much lower tax state than California, an experience that holds true for most taxpayers at different points along the income spectrum,” said Jared Walczak, the foundation’s vice president of state projects.
Unlike the ITEP study, the Tax Foundation analysis did not take into account various smaller taxes or the effects of major taxes paid by businesses.
The big difference between the two states is that Texas has no state income tax. California does, and its top rate is the highest state rate in the nation.
The two states have roughly comparable sales taxes.
Texas’ property tax rates are about twice as high as California’s though Texas homes tend to cost less on average.
Experts note that individual tax comparisons are always difficult. A person’s tax liability depends on several variables, including whether they own a home, their salary, how much fuel they use when driving, and so on.
In addition, tax laws tend to be complex.
“It’s important to understand that the two states have vastly different economic profiles and tax systems,” said Chris Hoene, executive director of the California Budget & Policy Center.
Texas is very dependent on natural resources and services, and it relies mostly on property, sales and natural resource-related taxes.
“So, the state’s revenues don’t tend to increase as quickly or as much as California’s doing periods of economic growth,” Hoene said, “but they also don’t decline as quickly or as much during periods of economic downturn. Natural resource-reliant states also tend to experience economic cycles differently.”
And, said Ray Perryman, a Waco, Texas-based economist, his state has prospected from huge gains in oil and gas taxes and royalties.
“The state has seen record levels of production in both as well as very high prices,” he said. “The state also has large sums of money from the various stimulus programs, which has not yet been spent.”
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