Taxes, Smoke and Mirrors

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A reader (ER) wrote to challenge the claim I made last month about the relative parity between California and Florida taxes. He asked what other taxes Floridians pay to offset the 10 percent Californians pay on every dollar of income?

It’s a good, if somewhat loaded question, and I was glad he took the time to write in.

I say “loaded” because, while we do pay a combined rate of around 10 percent in state and local taxes in California, we don’t pay 10 percent on income alone. If any of you do, you need to switch to Mitt Romney’s tax accountant.

But it’s still a good question. I’ve seen studies that rank California No. 10, No. 16, and No. 24 in total state and local taxes as a percentage of income. Governments like to hide taxes, so studies vary. Generally, they estimate the combined personal tax rate (income, property, sales, excise) is about 10.6 percent in California. By comparison, the estimate for Florida is about 9.7 percent, and it’s ranked about No. 30.

At first blush, these studies seem to back up ER, though even he might be surprised that the gap between high-tax California and tax-haven Florida is less than a percentage point. On income of $100,000, that’s a difference of only about $900, hardly enough to spark a mass exodus to Florida.

As I said last month, Prop. 13 is a big factor keeping the two states close. Thanks to Prop. 13, my property tax in California is about 0.4 percent of my home’s value. Apples-to-apples, the tax on our family’s place in Florida is 1.3 percent.

After this, the statistics get murky.

Florida rigs their taxes to shift the burden onto tourists. We rent the place in Florida for part of the year. Unlike California, Florida charges sales tax on vacation rentals, which raises our effective “property tax” another $1.200. However, this is considered a business tax, so it isn’t counted in Florida/s personal tax rate. Add it back, and, poof, some if not all the gap is erased. Smoke and mirrors!

Lots of taxes are hidden as utility bills, fees, assessments, or tolls. We do our share of that here (check your water bill for sewage as well as water charges), but there’s more of it in Florida.

Take highway taxes, for example. Florida has a lower gasoline tax than we do, but they also have the largest system of toll roads and bridges in the country. Tolls themselves are a hidden tax and they also lead to other hidden taxes that don’t show up in the studies on tax rates.

For example, we pay a $6 bridge toll to get to our island home in Florida. Protected by the toll from competitors, local merchants jack up the prices of goods and services, which is yet another hidden tax. The bad news is this hidden tax ends up in the merchants’ pockets rather than paying for better schools or roads. For politicians, though, the nice thing about hidden taxes is, well, they’re hidden.

Then there’s the issue of quality. I tried to find studies comparing fees of public colleges and universities between California and Florida, but came up dry. However there’s ample reason to believe that Californians used to get higher quality colleges for their tax dollars, and the same for ELHI, as well. Whether that continues in the future is a major choice Californians face when we vote on the Governor’s tax initiative this November.

If I’ve failed to convince ER there’s parity between California and Florida taxes, he might be tempted to move there to save a few bucks. I just hope he calls and asks me about hurricane insurance rates before doing anything rash.

Meantime, if we vote down the tax proposal in November, keep your eye out for more hidden taxes.

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