California’s seemingly high salaries seem relatively mundane when you consider the state’s expensive lifestyle and tax burden.
The U.S. Bureau of Economic Analysis’ annual “Price Parity” report gives us insight into the relative differences among the 50 states in terms of costs and revenues. My trusty spreadsheet looked at the latest statistics for 2023, which detail how spending is reducing California’s revenue.
Look, it’s no surprise that California is the most expensive place to live.
The cost of living in the state is 11.2 percent higher than the national standard, according to BEA calculations. After California comes New Jersey with a rate 8.2% above average, followed by Hawaii and Washington State with 7.9% and Massachusetts with 7.6%.
Arkansas is the nation’s top bargain spot, where it costs 15.6% less to live than the average American. Mississippi is next, at 14.5% below average, South Dakota at 13.5%, and Louisiana and Oklahoma at 13.3%.
And how do California’s big economic rivals fare on this cost measure?
Florida was 11th most expensive, 3.4% above average. Texas had the 21st highest costs, 2.9% cheaper than the norm.
But this cost of living score is only one slice of the overall “affordability” equation.
Payday Plus
The exorbitant expenses are somewhat offset for the typical Californian by their employer’s generous salary.
Consider the fact that the state’s per capita income in 2023 ranked sixth, at $81,300. The typical income in the United States was $69,800, or 14% less.
States with better wages than California were Massachusetts at $90,600, Connecticut at $89,900, New York at $82,300, New Jersey and Wyoming at $82,100.
On the other end of the salary spectrum, Mississippi had the lowest income at $49,700, followed by West Virginia ($52,800) and Alabama ($54,200), New Mexico ( $55,300) and Kentucky ($55,400).
Texas was No. 24 with $66,300. Florida was No. 19 with $68,700.
The taxman
California’s revenues are also strained by the fourth highest tax burden, according to BEA calculations.
California’s effective tax cost for 2023 – that is, personal taxes paid as a proportion of income, per capita – was 14.9% compared to 12.2% nationally.
New York was No. 1 with 16.9%, followed by Massachusetts with 16% and Connecticut with 15.4%. Maryland was No. 5 with 14.2 percent.
Conversely, Mississippians pay the lowest taxes at 7.7% of their income. Alaska follows with 7.9%, South Dakota with 8.1%, Oklahoma with 8.4% and Tennessee with 8.5%.
Florida was 23rd with 11.3%, but Texas was eighth with 9.2%.
Conclusion
Then think about the relative spending power of a Californian compared to other states.
Take those high wages, minus the cost of living and high taxes, and you get a relative disposable income of $61,400 for every Californian in 2023. That’s 26th best among states and just $100 more than the country’s $61,300.
Today, California lovers might say that an interim cash flow is fair compensation for the state’s many nonfinancial charms. This is one of the reasons the state has one of the lowest rates of departures to other states in the country.
However, critics of the Golden State will say that this theoretical income does not match many residents, especially those who earn below-average salaries. This spending splurge is why California has trouble attracting residents from other states.
By the way, Wyoming ranks first for this cost- and tax-adjusted income, at $80,100 – followed by South Dakota at $75,600, North Dakota at $73,600, Connecticut at $73,400 and Nebraska at $71,000.
Mississippi had the lowest paid workers by this pay metric, at $52,500, followed by West Virginia ($53,500), Hawaii ($53,700), Alabama ($54,400) and Georgia ($54,700).
And California’s rivals? Texas ranked 23rd with $61,900, while Florida ranked 37th with $58,900.
Jonathan Lansner is the Southern California News Group’s business columnist. He can be contacted at jlansner@scng.com
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