California Millionaires Flee State After Tax Hike

California lost an estimated 138 high income individuals due to the passage of the Proposition 30 - a tax hike pushed by Gov. Jerry Brown (D) and approved by voters in 2012, according to new research from Stanford University and members of the California Franchise Tax Board. 

The measure raised taxes on the state's highest earners by 8% - increasing it one percentage point to 13.3%, leaving California top-earners with the highest state income tax rate in the country. It also hiked the tax rate on income between $300,000 and $500,000 by 2%, while raising the tax rate on income over $500,000 by 3%.

Using California Franchise Tax Board data, the study led by Charles Varner, associate director of the Stanford Center on Poverty and Inequality, examined taxpayers who were and were not affected by the Prop. 30 tax hike, and found that in the two years before the increase was imposed (2011 and 2012) net in-migration for both groups "was positive and roughly consistent." After the tax increases, however, net in-migration fell for households hit with a tax increase of 0.5% or more - with the greatest reduction coming from households saddled with the highest effective tax rate.

For the largest and most recent of these reforms—a 2012 voter-enacted tax increase, the largest top marginal rate increase by any U.S. state over the past three decades—we observe a statistically significant effect in the expected direction. -Varner

The 2012 tax increases affected roughly 312,000 people, resulting in approximately .04% leaving the state. Numerically that's not a lot, but it's significant for several reasons - especially considering that an earlier 2004 tax increase had no negative effect on the millionaire population.

The research is an update to an earlier study that found more millionaires actually moved to California following a 2004 tax hike of 1% on income over $1 million to fund mental health services. 

“In other words, the highest-income Californians were less likely to leave the state after the [2004] millionaire tax was passed."

The 2012 tax hikes, however, were much larger than the 1% mental health surcharge.

One reason we wanted to update our previous paper is that this tax change in 2012 is the largest state tax change that we have seen in the U.S. for the last three decades,” Varner said.

[A]fter 2012, net in-migration declined for those facing an effective tax increase of 0.5 percent or higher. The drop was largest for the group facing the highest effective tax increase, wrote the authors, who included Allen Prohofsky of the California Franchise Tax Board. -SF Chronicle

That said, the researchers also noted that migration in and out of California accounts for a tiny portion of the state's millionaire ranks - a population which fluctuates by more than 10,000 people from year to year, while migration accounts for 50 - 120 people, or around 1%. The remaining 99% "is due to income dynamics at the top - California residents growing into the millionaire bracket, or falling out of it again." 

Moreover, the California millionaire population migrates for many reasons - and "changes dramatically over the business cycle." Tax increases are but one factor. 

If the population of top earners were determined mostly by tax rates, the basic population graph could be quite informative. However, population changes for other reasons. The strength of financial markets is critical, with the two peaks in Figure 1.5 corresponding to the dot-com boom (1999-2000) and the more recent stock market run-up (2007-08). These economic trends greatly increased the number of Californians earning very high incomes. Analytically, other drivers of the top-income population (particularly income growth) overshadow migration, which occurs on a smaller scale. -Varner

The millionaire population is highly correlated to the financial markets. The researchers found that the median person who earned at least $1 million in a given year earned at least $1 million in only seven of the 13 years before and after that year.

That could be one reason people don’t pull up stakes after a tax increase. Another reason: It’s hard to move when you have a high-paying job, a spouse who may work and kids. The report found that married people with children are less sensitive to the tax increase than married people without children. -SF Chronicle

Divorce

While tax increases account for a small number of CA millionaires leaving the state, a much larger factor is divorce, and as the authors note "The tax policy changes examined in this report are very modest compared to the life-impact of marital dissolution." 

"We find a strong migration effect for high-income earners who become divorced. In the year of divorce, the migration rate more than doubles, and remains slightly elevated for two years after the event."

The "divorce effect" was found to fall off as time passes, and is insignificant for divorces which happened over three years ago. 

So while the research team didn't find that millionaires are leaving "in droves" because of the tax hikes - and found that California was "consistently becoming a more attractive place for millionaires over the period we study" - the small but statistically significant migration tied to tax increases is notable. Not only can other states considering top-earner tax hikes look forward to outward migration, they should consider the economic impact of millionaires who move their businesses as well.

Comments

BlackChicken FireBrander Sat, 07/07/2018 - 17:35 Permalink

Lmao.

Sounds like the liberal utopian society isn’t working out so well.  Every week we hear of more people gtfo as fast as they can.  What a joke..

Ok, for our liberal/socialists that will junk these words, try actually debating my opinion with how it’s wrong, and how escaping and bringing the failed policies (that got you in this mess) with you won’t just screw up wherever you decide to go.

In reply to by FireBrander

drendebe10 BlackChicken Sat, 07/07/2018 - 22:59 Permalink

Fukdagawdamshitazzgubmint. Fukda progressive liberal democraps & their bullsht policies & agendas they shove down everyone else's throats with no responsibility or accountability if the sht outcomes of their fukt up policies. Witness Deathtroit, shitcago, sht francisco. 

In reply to by BlackChicken

roddy6667 IridiumRebel Sun, 07/08/2018 - 00:25 Permalink

Lived there for 65 years. It used to be great. It's about 49% conservative to 51% liberal, so it is run the way liberals like. That's the Tyranny of Democracy. 

Property taxes are crazy in CT. I have brother who just retired. His property taxes are $12,000 a year. They will only go up. the cities and the state have massive underfunded pensions. Towns and cities have only one form of income--property taxes. The state will have to raise the sales tax and a lot of other fees, like transfer taxes on real estate. 

Uhaul has been doing a great business in CT for over 10 years. Mostly outbound. They have to pay drivers to bring the trucks back.

Before people from places like Texas start to rant about how evil liberals from other states are, I'd like to point out that they are taking over. In Texas, all the big cities are already liberal strongholds. In the Texas school systems, white children are now a majority. In a very few years, all these Mexican and black kids will be voting. Every elected position from dogcatcher to mayor to Congressman will be liberal. 

Most "conservative" states are a mix of liberal and conservative. It doesn't take long to reach the tipping point. What then? Where will all the ZH posters who rant about "libtards"  go?

In reply to by IridiumRebel

MrAToZ BarkingCat Sun, 07/08/2018 - 12:29 Permalink

Show me a reasonable liberal then step into my office, I have a nice selection of ocean view homes in Kansas that I am willing to sell at a very low price.

How do you hijack a party? You vote them in.

Guess what? Whatever you thought you were, you are not it anymore. I keep hearing that these people in power are not liberals, they are radicals. That's the new tune on the liberal hit parade.

Not buying it. What you thought was a liberal is history, dust. Your party just validated a communist. You have been working toward this day for decades and now that it's here you want to pull out the word hijacked. Hijacked? Really?

It would be much more honest if you "liberals" who don't like where you find yourselves would drop the victim status (a life long habit) and just say "I helped do this, I was wrong. We voted these people in and we bought into this divisive destructive crap. We foisted it onto the citizenry and ruined countless lives. We behaved like children. We didn't get hijacked, we were foolish and irresponsible."

Don't just drag your tired ass carcasses into another functioning state without some mea culpa.

If you would just be honest about it, I'd throw you a hat tip.

 

In reply to by BarkingCat

any_mouse GunnerySgtHartman Sat, 07/07/2018 - 16:46 Permalink

Anywhere and Everywhere you go, you are still you.

As long as you are within borders defined by government, you are property and a subject of that government.

Some wear a velvet glove, others a weighted glove. Still a not so hidden hand on your back and in your face.

Picking how large a dose of poison you wish to endure.

How many of those California millionaires made their million because of the State of California. California was okay to them on their way up. Now they want out of that system.

Beneficiaries of CalPERS, cashing out?

In reply to by GunnerySgtHartman

shovelhead any_mouse Sun, 07/08/2018 - 11:57 Permalink

"Anywhere and Everywhere you go, you are still you. "

This is why I still come to ZH for these scintillating and deep revelations that I can apply in my life.

This is comforting knowledge, that no matter how many say I can change my sex, my race or just about any limitation that may be imposed on me, I still remain "me".

As Jokey Joe would say, "That's a pretty big fuckin' deal".

In reply to by any_mouse

roddy6667 Imxploring Sun, 07/08/2018 - 00:31 Permalink

It's more mental than financial. Smart people go where life is good and where they and their families can live good lives. This can be a blue collar guy who has a sit down with his family and explains why they are moving 1000 miles to a better life. Back in the Thirties, the Okies (think Grapes Of Wrath) packed their meager possessions and families onto broken down jalopies and headed west. In Appalachia, the coal mines closed and the locals are still there, living in misery. 

Some people will sit in a stalled car on the railroad tracks watching the slow moving train wreck happening.  
 

In reply to by Imxploring

DCFusor roddy6667 Sun, 07/08/2018 - 09:33 Permalink

The part of Appalachia I live in attracts wealthy people who like being around conservatives and natural beauty.  No homeless, no crime, very little misery here in Floyd. (Coal country is a bit west and south of here, but not much).  Most of my neighbors have their own shooting ranges on the back 40.  I have a machine shop, a lot of people are woodworkers.  What we burn for heat would make woodworkers elsewhere cry - we live in abundance.

Lots of farming, artisans, musicians, entrepreneurs, people who create value.

Oh shit - I didn't mean any of that.  We're full, y'all stay away.

In reply to by roddy6667

Lost in translation toady Sat, 07/07/2018 - 22:27 Permalink

Too late by 20 years.

The entire state is being paved over by drywalled McTowns, California-style.

Poverty everywhere you look: Winslow to Quartzsite, Benson to Strawberry, Parker to St. Johns, Jerome to Goodyear.

Phoenix itself has become a Third World shithole, and is indistinguishable from Los Angeles.

AZ is already fucked.

In reply to by toady