TaxProf Blog

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

Monday, March 11, 2019

High Taxes Be Damned, The Rich Keep Moving To California

CaliforniaLos Angeles Times, High Taxes be Damned, the Rich Keep Moving to California:

Are rich people fleeing California to escape astronomical state income taxes? That’s the word. But it’s fake news.

In fact, more wealthy people are moving to California than leaving, research indicates. It’s the poor and middle class who are departing.

It makes sense. If you’re getting rich in California and can afford to live comfortably here in this balmy climate, there’s little incentive to leave — except to stick it to the tax collector in Sacramento. ...

Loren Kaye, president of the California Foundation for Commerce and Education, a chamber affiliate, cautions: “You can’t shelter your income simply by moving out of state. If your business or work is in California, that’s where you’re taxed. California very aggressively collects taxes.”

But, he adds: “If you’re retired or living off of investments, that’s different.” You can move to Nevada, where there’s no state income tax, and live off a California public pension without paying either Sacramento or Carson City. ...

“Substantially more rich people are moving into California than moving out,” says Cristobal Young, a Cornell University sociology professor. He teamed with others at Stanford University’s Center on Poverty and Inequality to write a research paper on Millionaire Migration in California. “They want to be where the action is,” Young says. “There’s more opportunity in California. There are a lot of ways to make a lot of money in California, more than other places. A lot of that is tech, but it’s a diverse economy….The Stanford report concludes that California has “consistently become a more attractive place for millionaires,” adding that perhaps this is because California has become “a winner-take-all economy.”

Similar findings have been reported by other organizations.

(Hat Tip: Michael Simkovic.)

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Living in California may become a status symbol like a designer handbag: a signal to others that you can afford to spend extravagantly for something you like. It might even become a Veblen good.

Posted by: AMTbuff | Mar 11, 2019 11:48:17 AM

What much of the interstate emigration literature ignores is basic pricing theory. Why do people pay more for a Mercedes than for a Yugo? Because a Mercedes offers value that a Yugo does not. How can Mercedes Benz afford to offer more value than the makers of the Yugo? Because it charges more.

The same is true for locations. Why do people pay more to live in California than elsewhere? Because California offers value that many other locations do not. How can California afford to do so? Because it charges more.

This is simple Tieboutian sorting.

Posted by: Theodore P Seto | Mar 11, 2019 2:23:32 PM

Given that people have many reasons for moving other than taxes and government "value," a better measure of the effect on taxes on migration would be to model what the state would experience with lower taxes compared to its current high taxes. Does anyone really believe that California wouldn't experience more growth with lower taxes?

Posted by: Woody | Mar 12, 2019 5:37:39 PM

Um, the climate is just *really nice* whether or not anyone sees you enjoy it and without regard to local tax policy.

Posted by: Anand Desai | Mar 12, 2019 9:30:49 PM