California state leaders are monitoring millionaires to assess whether a recent jump in income taxes could lead to an exodus of the wealthy.
The San Francisco Chronicle reports that in 2011 “the top 1 percent of tax returns accounted for 41 percent of the state’s personal income tax revenues.” That was before the passage of Prop. 30 which raised California’s top income tax rate to 13.3 percent, the highest in the country. The increasing reliance on soaking the rich means “state leaders are watching closely” the movement of wealthy people out of the state. The Chronicle offers a number of examples of individuals who have decided to move out:
Lee Schneider, a hedge fund salesman who works from home, also cited
Prop. 30 as the “deciding factor” for his move from Walnut Creek to
Austin, Texas, in 2012. The California native had recently built a $2
million house at the foot of Mount Diablo and took a loss on the sale,
but “I can make half of it back in one year of tax savings,” he says.
neighborhood in Texas, which has no state income tax, is full of cars
with license-plate frames from California dealerships. On a flight from
Austin to Los Angeles shortly before Christmas, 11 of the 12 seats in
the emergency row were occupied by people who had moved from California
to Texas, he says.
Of course individual anecdotes don’t prove a trend. A spokesman for the California Dept. of Finance says there is “no compelling data in the economics or demographics” which would lead them to anticipate an exodus. He cites a 2012 study which found no increase in outward migration as a result of an earlier 1 percent tax increase for mental health. Of course the Prop. 30 increase was larger and applied retroactively.
The Chronicle concludes that it’s too soon to tell if there is a trend building. For now at least, California leaders seem confident the people paying a disproportionate percentage of California’s taxes will stay put.