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Tax the Rich and Watch Them Leave
By: Richard Rider

 

 

I’ll discuss below the “millionaire’s tax” aspect – and the unintended consequences if either the Brown or Munger tax is passed.  This subject is seldom broached even by opponents (even in the ballot arguments), as it’s felt that many people so hate rich folks that it’s “bad form” to speak out in their defense.  I disagree.

There’s a core fact to keep in mind – rich people seldom will leave the U.S. to avoid taxes, but – if taxes are deemed too high – many WILL leave a state.  Other states have experienced this outflow of the wealthy – and with FAR lower state income tax increases in their millionaire’s tax than California’s Prop 30 and 38.

Moreover, the really rich (the much-hated “investor class”) don’t even have to leave to avoid most CA income taxes.  Most have second homes in other states and travel quite a lot.  They can relocate their official residence to such a home, while still visiting California several months a year (but staying here no longer than 6 months total).

It’s not that easy to relocate for tax purposes – one must do it right and really relocate.  There are over 20 criteria a wealthy current “Golden State” taxpayer should meet to no longer be a California resident.  But for a rich person with proper financial advice and assistance, it’s a logical decision that offers huge annual savings.

How many wealthy folks will relocate – or take their businesses elsewhere?  No telling.  But most rich people are presumed to be greedy by the Occupy movement – let’s accept that premise.  I think we can agree that they didn’t become wealthy by being financially stupid.

It’s important to understand how California income taxes stack up against the other 49 states.  California already has the 2nd highest state income tax rate in the nation (behind Hawaii’s 11.0%).  Our 9.3% tax bracket starts at $48,029 for people filing as individuals.   Our 10.3% tax starts at $1,000,000.

Consider the Brown “millionaires’ tax.”  It would raise that rate to 13.3%, starting at $500,000 – including capital gains.  If approved, CA will be by far #1 in income tax rates.  We will be 21% higher than the 2nd highest state (Hawaii), 34% higher than the 3rd highest state (Oregon), and a heck of a lot higher than all the rest – including seven states with zero state income tax.  See Table 11.

The Munger top bracket is 12.5%.  While lower than the top Brown tax bracket, it’s still much higher than the other states.  We will be 14% higher than Hawaii and 26% higher than Oregon.

Note that in 2011 California had the 3rd highest state income tax rate.  Now we are 2nd.  What changed?

What changed was that Oregon, an extremely liberal state, decided it would be best to LOWER their top tax bracket from 11% to 9.9%.  Was it because they decided to coddle the wealthy?  I think not.  They concluded that their state would receive more revenue (and the economy would do better) if they didn’t soak the rich so much.

BTW, Oregon has ZERO state or local sales tax – one of only three states without a sales tax.  In contrast, California has the highest state sales tax rate in the nation.
 








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