‘Outward migration and behavioral responses by stayers together eroded 45.2 percent of the windfall tax revenues…’
(Joshua Paladino, Liberty Headlines) A California ballot initiative that increased taxes on top income earners by 1 to 3 percent caused a “substantial one-time out-migration,” found an October report from the National Bureau of Economic Research.
Researchers Joshua Rauh and Ryan J. Shyu discovered a “sharp uptick” in wealthy Californians leaving the state, particularly in the higher tax brackets—those earning between $2 million and $5 million and those earning more than $5 million, Fox Business reported.
About 0.8 percent of Californians who would have had to pay higher taxes left the state, while those who stayed earned less than in previous years.
These factors dampened the expected revenue increases by nearly half.
“Among top-bracket California taxpayers, outward migration and behavioral responses by stayers together eroded 45.2 percent of the windfall tax revenues from the reform in 2013,” Rauh and Shyu wrote.
The majority of wealthy Californians who left the state reportedly sought economic shelter in zero-income-tax states,
The escape from California occurred after voters approved Proposition 30 in November 2012, which set the state’s top marginal tax rate at 13.3 percent for people earning more than $1 million.
Although the ballot proposal initially implemented the taxes retroactively from 2012 to 2018, the state has extended them through 2030.
Rauh and Shyu wrote that policy-makers need to understand the unintended consequences of tax hikes, since the purpose is to raise revenue, not drive out taxpayers who generate revenue.
High-tax blue states have also complained about being punished by President Donald Trump’s 2017 Tax Cuts and Jobs Act, which limited the federal deduction on state and local taxes (SALT) to $10,000.
For example, New York Gov. Andrew Cuomo said the cap on SALT deductions will drive down the state’s population and deflate its revenues.
The state found itself in a $2.3 billion budget deficit after the SALT changes.
Cuomo said the state’s financial situation is “as serious as a heart attack.”