Wednesday, October 30, 2019
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.