Paul L. Caron

Wednesday, October 30, 2019

WSJ: California’s Tax-The-Rich Boomerang

Wall Street Journal editorial, California’s Tax-the-Rich Boomerang: A New Study Shows the 2012 Tax Hike Drove High Earners From the State:

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% [Behavioral Responses to State Income Taxation of High Earners: Evidence from California]. 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. ...

[T]he study estimates that outward migration and taxpayer behavioral responses erased 45.2% of the expected revenue gains from the tax hike on top earners. This is especially relevant since liberal economists argue that the rich don’t care about marginal tax rates and raising the top income rate to 70% won’t affect revenue or incentives to work.

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It's just a matter of time before states attempt to legally prevent residents from moving to another state for tax reasons.

Posted by: ruralcounsel | Oct 30, 2019 6:05:18 AM

Leaving the country is harder than moving to Texas or Florida, but retiring early or working fewer hours will be an easy decision at 70% tax rates. Such rates will cut in half the amount you keep from each extra dollar. Nobody holds still for a 50% pay cut.

Posted by: AMTbuff | Oct 30, 2019 6:57:15 AM

If I were an evil Democrat, I would continually increase taxes to export my cancer (Democrat voters) to the rest of the United States. Purple Texas!

Posted by: Anon | Oct 30, 2019 10:44:48 AM

ruralcounsel, California's Franchise Tax Board is doing their best to tax people who move out of state.

Posted by: PaulB | Oct 30, 2019 2:15:09 PM

"...states attempt to legally prevent residents from moving to another state for tax reasons." I seriously doubt that such a move would pass constitutional muster. If it ever happens (which I doubt), it's certain to be challenged.

Posted by: Gerald Scorse | Oct 30, 2019 3:39:08 PM

Recently, a Georgia client showed me a California tax bill covering 1996 and 1997 that he had just received in the mail. We laughed and laughed.

Posted by: Woody | Oct 30, 2019 7:18:57 PM

Illinois is already considering such a tax. The plan is to tax the sale of a residence if the seller does not buy another house in Illinois. We have some evil politicians here.

Posted by: Smitty | Oct 31, 2019 6:24:39 AM