The Middle-Class Taxes Debate: California Versus Texas

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Aug. 12 2021, Published 12:10 p.m. ET

Texas is one of nine U.S. states with no income tax, which makes the state seem like a sure bet for high-wage earners seeking to cut government expenses. However, as with anything relating to the IRS, the reality is more than meets the eye. In a largely left-leaning state like California, tax rates for the middle class manage to compete with those in Texas.

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So, which state has better tax rates for people who aren't on the top or bottom of the income scale—California or Texas? Let's delve into a quick analysis of tax rates, and how those taxes are distributed.

Texas has no income tax, but there are other kinds of taxes to look for as a middle-class family.

No matter what state you live in, federal income taxes will stick with you. However, you can move to states with no income tax, like Texas, to limit how much of your wage you have to give up to the government.

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However, income tax isn't the only tax category to look out for. There are also property taxes, for which Texan counties have one the highest in the U.S. On average, Texas residents are paying 1.69 percent in property taxes. For reference, the national average is 1.07 percent. The state as a whole doesn't impose property taxes, but it leaves it up to individual counties to tackle (in true Lone Star State fashion). This is a key reason why rates have increased so much over the national average.

The state also has high property tax penalties, which can amount to as much as 43 percent of your bill. With federal forbearance protections during the COVID-19 pandemic long expired, this is a key issue.

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Sales tax, which is the same for every economic class, is 6.25 percent–8.25 percent. This is average for the nation.

California's middle-class taxes are arranged differently.

The income tax for middle-class Californians sits around 8 percent–9.3 percent. Due to the state's progressive tax model, wealthy Californians have a higher tax rate, which is why you'll see individuals with high salaries and net worths make the trek to states like Texas.

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The property taxes in California are much lower than in Texas and even lower than the national average. A California property owner pays an average of 0.73 percent, which makes California a smart state to own property.

The statewide sales tax rate for California is 7.25 percent, which puts it in the same threshold as Texas.

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Middle-class Texans might pay more in taxes than in California.

The no-income-tax rule in Texas can be misleading, especially for middle-class workers who end up paying more in property taxes depending on what county they live in.

However, taxes aren't the whole picture. The cost of living in California is higher than in Texas, which could make a Texas residence work better for some middle-class families. Based on the overall cost of living index (for homeowners, no child care, taxes not considered), Los Angeles is 70.6 percent more expensive to live in than Dallas. If you're outside of the cities, that difference might be milder, making a California living worth your while.

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