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Budget Basics

California vs. Other States

How does California's budget compare to other states? California represents the fifth-largest economy in the world and its 39.25 million residents give it the largest population in the United States. California is not alone in its fiscal challenges. During the recession the depth of cuts in state and local government employment have been unprecedented according to the Rockefeller Institute of Government. As the economy has recovered, the unemployment rate was 4.2% as of December 2018 according to the Bureau of Labor Statistics. Total nonfarm employment grew 1.8% and government employment grew 1.2% from December 2017 to 2018. The sector that saw the greatest growth over the time period is Professional & Business Services, growing 3.6% over the 12 months.

According to the Tax Foundation, California’s total state and local tax burden in fiscal year 2012 ranks 6th highest nationally, at a rate of 11.0% of per capita income compared to the national average of 9.9%. Recent changes to the federal tax code in 2017 impact the amount that Californians can deduct state and local taxes from their federal income returns, newly capping the deduction at $10,000. For taxpayers that itemize, the average SALT deductions before the tax change were approximately $17,000 in California. In 2014, SALT deductions reduced Californians’ taxable income by $101 billion—more than twice that of second-place New York. 

California has the 20th-highest poverty rate of 14.3%. Mississippi has the highest at 20.8%, while New Hampshire has the lowest of 7.3%. Due largely to the high cost of housing, California has the highest poverty rate under the Supplemental Poverty Measure (SPM), which takes cost of living into account. California’s SPM rate is 20.4%, compared to the national average of 14.7%.

Comparison of Tax Rate by Type

  • California has among the highest income tax rates for upper-income households and one of the lowest income tax rates for lower-income households. The top 1% of income taxpayers in California account for over 45% of income tax revenue. State and local individual income tax collections per capita equal $1,991 in California, the 5th-highest in the country.
  • California has an above-average state sales tax rate (7.25%), but taxes few services compared to other states.
  • California has the 8th-highest corporation tax rate (flat tax of 8.84%) and corporation tax revenue is projected to account for 9.1% ($13.1 billion) of General Fund revenues in 2019-20.
  • California has below-average property tax rates, but higher property values. Property taxes paid as a percentage of owner-occupied housing value were 0.76% in 2016. Californians paid $1,451 per capita in property taxes compared to the national average of $1,518.
  • California collects revenue much differently than other states. In many states, property taxes represent a greater proportion of revenues than income taxes. The situation in California is reversed due to Proposition 13, which limits property tax rates, and its highly progressive income tax structure.

California spends more total dollars for public services than other states largely due to its large population, so per-person (or "per capita") comparisons are the most useful. As of 2018, California ranks 6th in state and local spending per capita with $11,528. Alaska spends the most with $20,668 and Idaho spends the least with $6,493.

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