2018-07-10 18:55:50 UTC
Millionaires Flee California After Tax Hike
Patrick Gleason, JUL 6, 2018, Forbes.com
According to new research released by Charles Varner, associate
director of the Stanford Center on Poverty and Inequality, California
lost an estimated 138 high-income individuals following passage of the
Proposition 30 income tax increase championed by Gov. Jerry Brown (D)
and approved by Golden State voters in 2012.
This new research by Varner updates a previous paper released six
years ago that looked at domestic migration to and from California
following a 2004 income tax hike.
One reason we wanted to update our previous paper is that this tax
change in 2012 is the largest state tax change that we have seen in
the U.S. for the last three decades, Varner said.
Prop. 30 raised the states top income tax rate by more than 29%,
increasing it three percentage points from 10.3% to 13.3%, which is
now the highest state income tax rate in the nation. Prop. 30 also
hiked the tax rate on income between $300,000 and $500,000 by two
percentage points (a 21.5% rate increase), and raised the rate on
income between $500,000 and $1,000,000 by three percentage points (a
more than 32% rate hike).
In 2016, California voters extended the Prop. 30 income tax increases,
which were originally scheduled to expire in 2019, until 2030. There
will be an effort to extend those income tax hikes yet again prior to
their expiration in 2030; book it now.
Varners new research examined taxpayers who were and were not hit by
the Prop. 30 rate hikes. He found that in the two years before the
Prop. 30 tax hike was imposed (2011 and 2012), net in-migration for
both groups was positive and roughly constant. Yet following 2012
and the passage of Prop. 30, net in-migration dropped for households
that were facing an effective tax increase of 0.5 percent or more. The
reduction was greatest for households facing the highest effective tax
hike, according to Varner and his coauthors.
This isnt surprising for those who are familiar with other attempts
to soak the rich with punitive state income tax hikes on high earners.
Take what happened in Maryland after Martin OMalley, the former
Democratic presidential candidate and governor, imposed a millionaires
tax hike a decade ago.
In 2008, in an attempt to address a state budget deficit brought about
by Marylands structural overspending problem, then-Gov. OMalley
championed and enacted a new millionaire income tax bracket, raising
the rate to 6.25%. A May 2009 Wall Street Journal editorial described
the disappearance of one-third of the states millionaires in the year
following OMalleys tax increase:
One year later, nobody's grinning. One-third of the millionaires have
disappeared from Maryland tax rolls. In 2008 roughly 3,000
million-dollar income tax returns were filed by the end of April. This
year there were 2,000, which the state comptroller's office concedes
is a 'substantial decline.' On those missing returns, the government
collects 6.25% of nothing. Instead of the state coffers gaining the
extra $106 million the politicians predicted, millionaires paid $100
million less in taxes than they did last year -- even at higher
rates All of this means that the burden of paying for bloated
government in Annapolis will fall on the middle class. Thanks to the
futility of soaking the rich, these working families will now pay Mr.
O'Malley's fair share.
Some, like the folks at Next 10, a San Francisco-based think tank,
point to high housing costs as a more important factor than high taxes
when it comes to what is driving people to leave California. While
its clear that up is the only direction in which most California
legislators want to take the states overall tax burden, its
uncertain what action, if any, California officials will take to
reduce exorbitant housing costs. When given the opportunity to
institute a modest reform this year to help alleviate the high cost of
housing, California officials declined.
Earlier this year Assemblyman Scott Wiener (D-San Francisco)
introduced Senate Bill 827, legislation that would permit higher
density housing near mass transit stops statewide. Passage of 827
wouldve permitted apartment buildings of up to five stories to be
constructed near stations for San Franciscos BART, Los Angeless
Metro Rail, and other mass transit stops throughout California.
Despite claims that they are defenders of the downtrodden, Democrats
who have steep majorities in both chambers of the California
legislature were unable to pass Wieners bill. The failure to enact
Wieners bill, which policy experts across the political spectrum
viewed as a reasonable reform with which to begin addressing high
housing costs, leaves little hope for those who want to see California
lawmakers repeal or reform regulations that unnecessarily inflate the
cost of housing.
Going back to Californias high tax burden, Varners new research
backs up the old adage that when you tax something you get less of it.
That applies whether the thing being taxed is cigarettes, booze, or,
in Californias case, millionaires.
Patrick Gleason is vice president of state affairs at Americans for
Tax Reform, and a senior fellow at the Beacon Center of Tennessee.
Follow Patrick on Twitter: @PatrickMGleason