Is your state’s heavy taxation and regulation hurting your business? More people are feeling that way all the time, as I wrote in this piece on July 9, 2018.
Despite the allure of Silicon Valley, Hollywood and it’s natural beauty, California has succeeded in driving away a “small but statistically significant percentage of high-income residents after voters approved Proposition 30.”
If you don’t remember, Prop 30 was a ballot measure Californians approved in 2012 raising taxes on high income earners. The measure turned what had been a net-in migration of high income earners to California into what is now a net-out migration. Kathleen Pender explains in The San Francisco Chronicle:
For singles, Prop. 30 raised the rate by one percentage point on income between $250,000 and $300,000; by two points on income between $300,000 and $500,000; and by three points on income over $500,000. The income thresholds are doubled for married couples and indexed to inflation.
This brought California’s top rate, including the mental health tax, to 13.3 percent. (These increases were supposed to expire in 2019, but in 2016 voters extended them to 2030.)
The new working paper looked at taxpayers who were and were not subject to those rate hikes and found that in the two years before the increase (2011 and 2012), net in-migration for both groups “was positive and roughly constant.”
However, after 2012, net in-migration declined for those facing an effective tax increase of 0.5 percent or higher. The drop was largest for the group facing the highest effective tax increase, wrote the authors, who included Allen Prohofsky of the California Franchise Tax Board.
The fact is, money goes where it’s treated best, and so do the wealthy. With the elimination of the state and local tax deduction for federal income taxes, high earning California residents will be getting what amounts to another tax rate increase thanks to their state’s punitive tax system.
Earlier this year I wrote about John F. Early’s explanation of how people feel alienated when they work harder but don’t get ahead. That’s what’s happening to California’s wealthy. They’re keeping less than half of the last dollars they earn. How can they feel good about that?