Due to the passage of Proposition 30 last November, the state of California now has the highest top marginal tax rates for those deemed to be “wealthy.” For individuals earning $1 million or more, the tax increased from 9.3 percent to 12.3 percent, retroactive to the beginning of 2012. Also, there is a “mental health surcharge” of one percent, so that would be a total of 13.3 percent.
The purpose of the hike in taxes was to cover the budget shortfall and to fund various social programs, like healthcare and education. However, similar to other states that have imposed similar measures, it usually doesn’t remedy the matter because the affluent simply move to another tax-friendly state, such as Arizona, Nevada, Oregon, Washington and Texas.
Professional golfer Phil Mickelson made headlines this month when he criticized the high tax rates in The Golden State. Because of his combined federal and state tax rates of 62 or 63 percent, it has been reported that Mickelson has been mulling moving away from California, although he did issue an apology later for going public with his views.
Even celebrated golfer Tiger Woods admitted he left California with his millions to move to Florida.
“I moved out of here back in ’96 for that reason,” said multi-time champion Woods. I enjoy Florida, but I also understand what I think he was trying to say. I think he’ll probably explain it in a little more detail.”
Of course, Mickelson isn’t the only wealthy individual to complain about the rates and eventually even leave the state.
According to a U.S. Census Bureau report, approximately 100,000 people moved away from California in 2011 than relocated to the state. Other than the tax rates, the rising cost of living and unemployment have been attributable to the mass exodus.
Another study by the Manhattan Institute discovered that about 225,000 taxpayers left California each year with their wealth. This means a total of roughly $14 billion was gone and the state could not get a piece of that money.
Fox News reported this month that accounting firms have received hundreds of inquiries from individuals and businesses in regards to information about lower tax rates in other states.
“As soon as Prop 30 happened, I saw just a huge change in the mindset. It was almost as if that pushes it to the limit,” said consultant Matt Bradvica, a certified public accountant in the San Diego office of the national tax advising company McGladrey, in an interview with the news outlet. “There are other states out there that have no income tax at the individual level. And so if you can save 13 percent in your business by residing in Nevada, for instance, which is a zero tax state, then I need to consider doing that.”
One wealthy San Diego resident, whose identity was kept anonymous, said that his family will save $30,000 every month by moving to Arizona. He noted that he is not against paying his fair share, but believes it’s “unfair” when half of the state doesn’t pay personal income taxes.
“We feel like the politically convenient target,” he said. “Governor [Jerry] Brown used the tyranny of the majority to steal from the minority. It’s that simple. The majority isn’t going to vote to increase their taxes — stick it to the guy next door. That is the mentality in California and while we love the state and will miss the beaches, we’ve had it. We’re out.”
Households earning more than $250,000 a year pay nearly two-thirds (62 percent) of California’s taxes, households making more than $450,000 pay 46 percent of the state’s taxes and households with incomes exceeding $1 million pay a quarter of its states.
With these taxes, California is hoping to generate between $5 billion and $7 billion in revenue. Economic Collapse News reported late last year of the states that tried to impose higher taxes on the rich. Connecticut introduced the largest tax increase in the state’s history, but it only raised $95 million from previous projections that it would actually balance the $365 budget deficit.
Maryland thought it could generate $106 million in revenues with a millionaire’s tax, but it actually lost $257 million because the rich just left.
On an international level, French actor Gerard Depardieu abandoned his citizenship and became a Russian citizen, which has a tax rate of about 13 percent. After French President Francois Hollande proposed a 75 percent tax on the wealthy, millionaires and billionaires immediately considered moving to places like Belgium, while British Prime Minister David Cameron quipped that he would have a “red carpet” to welcome the affluent.
To show the failure of these economic policies, financial experts say the real data will be revealed in 2014 when it shows a significant decline in tax revenue.