Living in California has many perks, but tax rates are not among them. As the Phil Mickelson brouhaha underscored, poor economics and rising tax rates can cause a perfect storm. Everyone gets upset, regardless of income levels. And while views differ, complaining about taxes may be part of the human condition.
In November 2012, California ramped up its already high state tax rates retroactively to January 1, 2012. That meant a whopping rate increase of 30% for some high income taxpayers. Those earning $250,000 to $300,000 a year now pay 10.3%, up from 9.3%. For $1 million-plus-earners, California’s rate is 13.3%, up from 10.3%.
In some cases, California taxes are causing migrations out of state. . But as the federal tax debate reveals, it isn’t only top ordinary rates that are debated, but capital gain rates as well. At the federal level, the capital gain rate remains 15% for some, but rose to 20% for higher income taxpayers. Add the 3.8% investment tax that results from the new healthcare law known as Obamacare, and you have 23.8% for many. That’s a far cry from the 15% applicable in 2012.
What about Californians? Although we may understandably focus primarily on federal taxes, most states have an income tax too. But exactly how they tax capital gain is another matter and can be surprising. Some states–and California is one of them–tax capital gains as high as 13.3%. It’s one thing to compare states, but the comparisons can be even more depressing when one looks around the world.
In fact, if you are paying up to a 33% combined federal and state tax on capital gains as you may be in California, you are paying more than virtually anyone else in the world. That will hit you in your pocketbook. Plus, experts say the impact is bigger than that. Such a high tax rate has long-term negative implications for the economy, for people save and invest less.
Meanwhile, they say, capital seeks higher returns in other countries. Take a look at how we stack up:
Long-term Capital Gains Rate
|Rank||Country/State||Capital Gains Rate|
|19||District of Columbia||29.1%|