Sales tax hikes in LA County might sting, but consumers spending less on taxable goods

FILE: A cash register shows the purchase of an LCD screen TV.
FILE: A cash register shows the purchase of an LCD screen TV.
Aranami via Flickr

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Shoppers in Los Angeles County are paying a bit more in sales tax this week, thanks to the voter-approved Measure M, which will fund billions of dollars in transportation projects. They'll pay even more in October when Measure H takes effect to fund homeless services.

Measure M raised the sales tax by a half-cent and Measure H will raise it by a quarter-cent, bringing the base sales tax rate in the county to 9.5 percent.

But while consumers, particularly lower-income ones, will feel it in the pocketbook, the affect of the increase is mitigated by a trend of decreased spending on taxable goods. 

"A lot of things that people spend their money on are not subject to the sales tax," said Professor Mark Phillips of the University of Southern California.

Sales tax in California is limited to non-essential tangible goods, like electronics or clothing, and excludes necessities like food or housing. Unlike some other states, California doesn't levy a tax on services like hiring an attorney or a building contractor.

According to a report from the California Legislative Analyst's Office, the average Californian spends a significantly smaller portion of their income on taxable goods today than they did decades ago. 

Spending on taxable goods peaked in 1979 when consumers spent just over half their income on taxable goods. The proportion has been declining and now consumers in the state spend about a third of their income on taxable goods.

Part of the reason, Phillips said, is that advances in manufacturing and globalized markets have made tangible goods relatively less expensive while costs for things like housing and health care have dramatically risen.

Still, sales taxes pose more of a burden to lower-income people, who pay a much higher percent of their income in sales taxes than higher earners.

According to a report from the Institute on Taxation and Economic Policy, the lowest 20 percent of earners in California pay 6.8 percent of their income in sales taxes while those with the top 1 percent of salaries pay less than 1 percent of their incomes in sales taxes.