Policy Analysis — June 2026

Business Climate: The Regulation State

395 new regulations per year. 18,000+ companies left since 2018. The state that taxes success and subsidizes failure.

Tax Climate

49th

Tax Foundation

Regulatory

Worst

Multiple rankings

Income Tax

13.3%

Highest in US

GDP Rank

5th

Global economy

The Paradox: Worst Climate, 5th Largest Economy

California consistently ranks 49th or 50th in business climate surveys -- yet it has the 5th largest economy in the world. How?

A PPIC study found the answer: California's advantages -- climate, industry mix, universities, and talent pool -- offset its policy disadvantages. The state grows despite its governance, not because of it.

But the question is: how much faster would California grow -- and how many more people could afford to live here -- if the policy environment matched the natural advantages?

Where California Ranks

49th

State Business Tax Climate

Tax Foundation 2025 -- Only New Jersey ranks worse. Combines income, sales, property, corporate tax burden.

50th (worst)

Top Marginal Income Tax

Tax Foundation -- 13.3% -- highest in nation. Additional 1% mental health surcharge above $1M.

50th (highest)

State Sales Tax Rate

Tax Foundation -- 7.25% base rate -- highest state-level rate. Combined avg 8.68%, some areas 10%+.

50th

Regulatory Burden

Multiple sources -- CEQA, labor law complexity, AB 1228 fast food wage, workers comp costs.

49th

Economic Freedom

Fraser Institute -- Only New York scores worse on combined tax + regulation index.

5th

GDP (Global)

US BEA / World Bank -- $4.1 trillion -- larger than UK, India, France. Silicon Valley + Hollywood + agriculture.

1st

Venture Capital

PitchBook -- ~50% of all US venture capital flows through California. Unmatched innovation ecosystem.

Sources: EIA, CAISO, CA Energy Commission, CPUC, CA Legislative Analyst, NRC, AAA, GasBuddy, Tax Foundation, MIT/Stanford, Kpler, Bloomberg, Reuters, CalMatters, UC Davis. March 2026.