Why is California So Expensive?

California is a great place to live. It has made appearances in a lot of people’s dreams and that’s because of the beaches, climate and all the other benefits it has to offer. California has been a very popular state for celebrities to live in. And due to the size and different environments, it can be found on TV quite a lot for the rest of the world. However, the cost of living could leave you reconsidering.

Why is California so expensive?

Two of the largest factors that makes California an expensive place to live are tax policies and housing costs which we will delve into here.

California’s Tax Policy and How It Affects the Cost of Living

According to LAO, California has over 37 million residents and is the eighth largest economy in the world! California also has substantial and diverse demands in such areas as education, health care, and infrastructure. It is not surprising, then, that its public sector is one of the largest and most diversified in the world.

California primarily taxes its residents and their businesses in order to fund public projects that are for the good of everyone. California’s state and local governments raise well over $200 billion annually in own-source revenues to provide public services, with roughly 60 percent of this from taxes.

California’s high tax rates are causing headaches for individuals and businesses. California’s top 13.3% bracket for personal income tax is the highest among the 50 states, and the corporate income tax rate of 8.84% is near the top (only Alaska, Iowa, Illinois, Minnesota, New Jersey, and Pennsylvania have higher corporate rates).

California law requires that its residents — those living here or out of state for a temporary or transitory purpose — pay state income tax on their worldwide income. California zealously enforces its tax laws, especially when it comes to auditing taxpayers who claim to have left the state.

This tax policy can provide communities in the state with needed services. But, these taxes can cut into the cost of living.

Housing Costs in California

According to Realtor.com, as of March 2020, median home prices in California were more than $600,000 — almost 88% higher than the national median of $320,000 and more than its neighboring states. If you are renting in California, the median rent for a two-bedroom apartment was almost $1,900 – about 55% higher than the national median of $1,200.

Data shows that the housing cost to household income ratios in California are higher than the U.S. average. According to Zillow.com data, Hawaii and California are the top states for home price costs and issues with affordable housing. In fact, the top five most expensive large metros in the U.S. are all located in California.

The tax policy in California, combined with the high housing costs, leaves most Californians with a lot less in their pockets for food, gas, groceries, etc. This is especially true for the increasing numbers of retirees who are on fixed incomes.

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