“I think Governor [Jerry] Brown’s done a very poor job running California. They have the highest taxes in the United States. … Hey, I have property in California, I will say. I don’t think too much about my property anymore but I have great property in California. The taxes are way, way out of whack and people are going to start to move pretty soon …. [T]he taxes are double and triple what they should be. And everybody that lives in California, they know it.”
— President Trump, remarks to reporters while touring prototypes of the wall he wants along the southern border, near San Diego, March 13, 2018
A number of readers from California wrote to express outrage at the president’s remarks about the state’s taxes when he visited the state. In particular, they noted that he mentioned property that he owns in the state and yet complained “the taxes are way, way out of whack … double and triple what they should be.”
One reader even compared the property taxes levied on his homes with equivalent homes in Chicago and New York. “Due to Proposition 13, we have some of the most reasonable property tax rates in the country,” he wrote. “I would love to compare our property taxes on the land he owns here compared to a similar market value property in New York or some other state on the East Coast. I’m originally from Chicago and I know high property taxes.”
He said that on one of his homes, in Claremont, Calif., with a value of $542,584, he pays about $2,492 in taxes a year, compared with $7,528 for an equivalent home in Chicago, according to Zillow. His other home, which is in Winchester, Calif., and is valued at $421,866, has taxes of $4,493, compared with $10,412 for one of equivalent value in Westbury, N.Y.
It’s not clear from the president’s remarks whether he is talking only about property taxes or taxes overall. (White House officials say he was not.) He knocks Brown — who raised taxes — for doing a “very poor job,” but the governor actually has been lauded for turning around the state’s fiscal condition. The state had a $27 billion budget deficit when Brown took office eight years ago and is now on track for a $6 billion surplus.
There are several ways to slice the tax data, so let’s take a look.
In 1978, California voters approved Proposition 13, which rolled back most local real estate assessments to 1975 market-value levels and limited future property tax increases. In essence, the property tax is only substantially adjusted when there is a change in ownership or new construction.
Even today, after adjustments over the years, California has relatively low property taxes. The nonpartisan Tax Foundation, which leans to the right, says mean effective property taxes for owner-occupied housing shows the state ranks 34th in the nation, well behind New York, which ranked 11th.
Indeed, after Trump’s appearance, the San Francisco Chronicle ran an article titled, “Trump complains about California taxes, but in SF, he’s got a sweet deal.”
The article noted that the Trump Organization owns 30 percent of the historic Bank of America building, for which annual property taxes come to $14.4 million on an assessed value of more than $1.2 billion. By contrast, a similarly valued building in Miami would face property taxes of $25.4 million.
Trump owns two other properties in California, according to a list compiled by Curbed.com: the Trump National Golf Club in Los Angeles and a house across the street from the Beverly Hills Hotel that is valued at about $9 million.
White House officials, however, say Trump was not referring to property taxes but income taxes. An article in Forbes magazine highlighted California’s recent increase in its top income tax rate to 13.3 percent, making it the highest in the nation and suggested that it could lead people to leave for lower-taxed states.
This marginal rate applies only to incomes over $1 million. California has one of the most progressive tax systems in the country, with incomes below $30,000 facing marginal tax rates of between 1 and 6 percent. The Tax Foundation ranks California as the most progressive tax system in the United States — and even more progressive than any nation in the Organization for Economic Cooperation and Development, including France or Portugal.
Moreover, we should note that while New York state’s top income tax rate is 8.82 percent, New York City adds 3.876 percent to it, for a total of almost 12.7 percent. So California’s rate should not seem so out of line for a wealthy Manhattan resident like Trump.
Still, nearly 70 percent of California’s projected revenue of about $135 billion next fiscal year comes from personal income taxes. So when California’s overall tax burden is considered, it ranks as the sixth-highest, according to 2012 data compiled by the Tax Foundation.
The Tax Foundation also says that California is one of the worst states in the country — 48th — in terms of the business tax climate. While the state does well on property and unemployment taxes, its overall rank is dragged down by the high marginal income tax rates.
There is a proposal in the state assembly to boost the corporate income tax rate to 18.84 percent, up from 8.84 percent, to make up lost revenue from Trump’s tax-cut bill. The proposed rate would be three times the median rate of other states, but it is given little chance of passage.
The Pinocchio Test
The president claimed that “everybody that lives in California” knows their taxes are too high. Readers beg to differ, especially when it comes to property taxes. When we first saw Trump’s remarks, we were inclined to agree that he was talking about property taxes, given the context. But White House officials say he was talking about income tax rates; he mentioned his properties to indicate being knowledgeable about the state.
Trump’s imprecise language makes it difficult to reach a firm conclusion. California has the highest marginal income tax rate — within a very progressive system — but among the lowest property tax burdens. In other tax areas, it is not the worst, as Trump suggests. So we will leave this at Two Pinocchios.
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