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California’s Tax Increases Spur 40% More Wealthy Residents to Leave

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By RedTango @ Shutterstock.com

Just how long will wealthy Californians accept being used as an ATM machine by the state’s legislators?

For years Democrats have said their ever-increasing taxes don’t drive wealthy people away from the state. A new study says that theory is false. In fact, the study suggests higher taxes in California increased the number of wealthy residents fleeing by 40%. Americans do, in fact, want to leave their high tax states.

The Editors at The Wall Street Journal write:

Democrats in California have raised taxes on the rich again and again, and liberals claim it has no effect on taxpayer migration and does no harm to state tax revenue. A new study finds the opposite.

Stanford economists Joshua Rauh and Ryan Shyu analyzed how high earners responded to a 2012 referendum (Prop. 30) backed by Democrats that raised the top marginal rate on taxpayers with more than $1 million of income to 13.3% from 10.3%. The top rates on individuals earning more than $250,000 also rose between one and two percentage points.

First, the researchers examined whether higher taxes caused top earners to leave the state by measuring migration before and after Prop. 30 took effect. They noted a large uptick in the departure rate of taxpayers with more than $5 million in income following the tax hike—from 1.5% to 2.125%—and a commensurate outflow for taxpayers earning between $2 million and $5 million.

This essentially means that the likelihood of a wealthy resident moving out of California increased by about 40% after Prop. 30. Notably, the federal top marginal rate also rose in 2013, which the authors say softened the impact because the deductibility of state taxes also increased. After the GOP tax reform, state and local taxes are no longer fully deductible so the incentive to move is now greater.

I want you to make informed decisions about where you live and retire. The state you call home shouldn’t look at your retirement savings as a revenue generator.

The money you worked hard for should be spent by you and your family, not wasted on the latest project dreamed up at your statehouse.

Your first step is to understand how your state’s taxes stack up. Then figure out if you are benefitting from your state’s taxes. Is it providing you with what you need?

Then take a look at the best states for retiree taxation. This can make a big difference when you’re living on a fixed income. Don’t forget property taxes, these are a necessary part of your retirement calculations in any state.

Don’t lose the tax game, choose where to retire wisely.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com