Taxes. At 13.3%, California has the highest income tax rate in the country. To provide even more heartache, with the passage of the Tax Cuts and Jobs Act in 2017, state and local tax deductions are limited to $10,000 on the federal tax return. For many California residents, or for that matter, residents of any state with a higher income tax, the dream of moving to a lower tax state (or even a state with no income tax!) is real.