California’s progressive personal income tax system, including a 10.3% rate for millionaires, is not responsible for driving wealthy people out of California, according to a new analysis of census data by the Public Policy Institute of California.
Taking on a key Republican talking point in the state’s raging battle over the budget and taxation, PPIC economist Jed Kolko examined domestic migration patterns in and out of California and other states, with a variety of tax levels, and concluded that “income taxes aren’t driving the highest income households” from the state.
Kolko found that while wealthy households – the top fifth in the state – are leaving California, they are doing so at a much lower rate than poor households – the bottom fifth.
“If high income taxes were chasing away rich Californians, high-income households would be more likely than low-income households to move to states without income taxes—but they aren’t. How come? States without income taxes are cheaper than California in other ways—housing costs, for example—that matter to all types of households, not only to those with the highest incomes. In other words, California does lose people to lower-tax states—but not just because of income taxes.”
The study is politically significant at a time when there is intensive debate over the impact of tax policy on the collapsing state budget. It also comes as the California Commission on the 21st Century, which is charged with recommending changes to the tax code to make the state more competitive, is wrapping up its work, with conservative and liberal members divided over the effect the current progressive income tax system. Check Calbuzz on Monday for more on that.
You can see the complete PPIC report here.
— By Jerry Roberts and Phil Trounstine