Myth: High Taxes Drive Rich People Out of California


richie rich 3California’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

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There are 4 comments for this post

  1. avatar fredtyg says:

    The bottom line is that people, both rich and poor, are leaving California. Sure, this may or may not prove that more poor are leaving the state than the rich, but more rich people are leaving than coming to the state, regardless.

  2. avatar Reasoning Skills says:

    Leaving alone the PPIC’s dubious conclusion, the study does indicate that the economy is in even worse shape than people imagine. If the mensas up in the Capitol decided to fix the economy, the budget would take care of itself.

  3. avatar Andy says:

    The “mensas” in Sacramento cannot fix the economy…part of our problem is the expectation that they can.

  4. avatar Sac Economist says:

    The biggest drivers of California migration are housing costs and job opportunities—not taxes. Whenever the California economy is booming, people migrate for the job opportunities. This usually leads to rising home prices, which eventually put a damper on things. If the economy slows or tanks, as it did in 2001 and 2007, in-migration slows to a trickle (no jobs to be found) and people (particularly new retirees) look for lower-cost alternatives nearby (Arizona and Nevada).

    Outside of us working stiffs, it’s the quality of life that drives you to decide where to live—not taxes. In spite of its apparent high marginal income tax rate, California’s overall tax bite is in the middle of the pack—ranking 14th as a percent of total income. Just think for moment—how much of a tax hike would it take to get Oprah to give up Montecito for Galveston? (http://www.luxist.com/2006/04/21/oprahs-home-improvements/)

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