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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. See Moving To Beat High State Taxes? Watch Out. 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. See FTB Publication 1031. 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. See The High Burden of State and Federal Capital Gains Taxes. Take a look at how we stack up:
Long-term Capital Gains Rate
Rank Country/State Capital Gains Rate
1 Denmark 42.0%
2 California 33.0%
3 France 32.5%
4 Finland 32.0%
5 New York 31.4%
6 Oregon 31.0%
7 Delaware 30.4%
8 New Jersey 30.4%
9 Vermont 30.4%
10 Maryland 30.3%
11 Maine 30.1%
12 Ireland 30.0%
13 Sweden 30.0%
14 Idaho 29.7%
15 Minnesota 29.7%
16 North Carolina 29.7%
17 Iowa 29.6%
18 Hawaii 29.4%
19 District of Columbia 29.1%
20 Nebraska 29.1%
21 Connecticut 29.0%
22 West Virginia 28.9%
23 Ohio 28.7%
24 Georgia 28.6%
25 Kentucky 28.6%
Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at
Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
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