Why Rich People Leave California … or Don’t

CAL MATTERS-Far more millionaires move into California than leave, despite the state’s highest-in-the-nation income-tax rate, a new study shows.  

Researchers at Stanford University’sCenter on Poverty and Inequality and the Franchise Tax Board sought to answer the question: Does California’s top state income-tax rate, now 13.3 percent on people earning $1 million a year or more, drive the wealthy to leave for low-tax states? 

Short answer: No, except on the far margin. The researchers reviewed 25 years of California tax returns from all high earners and found that more wealthy people relocate after a divorce. 

Republicans regularly cite anecdotes of businesses owners and wealthy people decamping to low-tax states such as Nevada or Texas. But the study shows million-dollar earners moved to California even after voters raised income taxes in 2004 and 2012: 

“We often think that the only way for a state to be ‘competitive’ is to be like Texas—a low-tax, low-infrastructure, low-services state. But the reality is that the most competitive places in the U.S., the leading drivers of the economy, and the centers for top talent are New York and California—and they have been for generations, despite higher taxes on top incomes.” 

Why this matters: Gavin Newsom, Democratic front-runner to become the next governor, has called for a review of the tax system. There is much to update, and income taxes, a major source of state revenue, would be part of any discussion. The study provides facts for any review.

(Dan Morain, former editorial page editor and political affairs columnist at The Sacramento Bee, is bringing his decades of experience and institutional knowledge to CALmatters where this was first posted.) Prepped for CityWatch by Linda Abrams.