TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, July 12, 2018

Millionaires Flee California After Tax Hike

CalifForbes, Millionaires Flee California After Tax Hike:

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 state’s 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). ...

Varner’s 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.

For more, see Joseph Bankman (Stanford) & Paul L. Caron (Pepperdine), California Dreamin': Tax Scholarship in a Time of Fiscal Crisis, 48 U.C. Davis L. Rev. 405 (2014)

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138 individuals "fleeing" from a state of 40 million is not a trend. Sounds like regular year-to-year variance to me, not a true finding.

Posted by: Anon | Jul 12, 2018 6:45:17 AM

Anon, the Stanford institute referred to here has previously made the argument that higher state income taxes will not cause affluent residents to leave, other than some retirees who no longer need to live in the state to earn their high salaries. That statistic they come up with is meant to show that the new tax law won't affect this as well.

Posted by: PaulB | Jul 12, 2018 7:21:14 AM

The study results should be compared not to total population but to the fewer number of high income taxpayers who have the option to shift earnings from high-tax California. Many taxpayers stay in the state only because they are physically tied to jobs there. Those whose work doesn't tie them down can and will move to lower or zero tax states, like Phil Mickelson and Tiger Woods did and Hollywood is doing.

Posted by: Woody | Jul 12, 2018 9:12:39 AM

From the actual study, "Both in absolute terms, and compared to sensible control groups, we find little migration response to changes in top tax rates."

Posted by: Matthew Bruckner | Jul 13, 2018 4:13:42 AM

AZ is grateful to the people of the great state of California for their most beautiful plot of land and their politics that drive so many of their people across the desert to Phoenix to become dutiful taxpayers at a fair rate, such as, I believe, the aforementioned Phil Mickelson. Tiger, my neighbor's house is for sale. Just sayin'.

Posted by: Kent | Jul 13, 2018 6:58:25 AM