It Really IS Different in California

by Pejman Yousefzadeh on March 26, 2012

Some of the Golden State’s political leaders hold the peculiar belief that they can raise taxes with impunity, and that residents will not respond by voting with their feet and leaving:

It’s hard to believe now, but Jerry Brown once ran for President as a reformer who favored a flat tax with a 13% top federal rate. That was 1992. Nowadays in his second stint as Governor, he’s running to give California alone a higher top income-tax rate.

The incredible shifting Governor recently agreed to adjust his November ballot initiative to include an even higher top tax rate. Previously he favored an increase to 12.3% from 10.3% today. But the government-unions that live off tax revenues had threatened to sponsor their own ballot measure raising the top rate even higher.

The Governor feared that divided support might doom both. So he and the unions agreed to back only one initiative with a top rate of 13.3%. The measure would also raise the state sales tax by a quarter of a percentage point to 7.5%, or more than 9% including the sales tax in some cities. Oh, and instead of lasting five years, the income-tax increase would last for seven.

All of this is said to be necessary to balance a $9.2 billion budget deficit. So what else is new? Mr. Brown expects about $9 billion in added revenue, up from $7 billion in his first package. But the state Legislative Analyst’s Office has already told Mr. Brown that he’s hallucinating to think he can get that much money from a corner of the taxpayer base.

The top 1% in California pay between one third and half of all state income tax revenues, depending on the condition of the economy. California already has the fourth highest income tax in the nation, behind Hawaii and Oregon at 11% and New York City at nearly 13%. The national average for the top income tax rate is under 6%. Nine states have no income tax.

So for the privilege of living in California, a millionaire would pay close to $125,000 a year more in income tax than someone in Nevada, Texas or Florida. A Californian earning $10 million would pay an extra $1 million or more than if she moved to a state without an income tax, or nearly $500,000 than an average tax state.

How many people does the Brown administration think will stick around in California under those circumstances? And once those people depart, where will the revenue the administration is counting on come from?

  • Jeff S.

    I hope they pass it. An accelerated progressive experiment will result only in accelerated failure and bankruptcy. Whether the rest of the states (the few solvent ones excluded) and the federal government will benefit by the example remains to be seen, but we can hope.

  • weatherguesser

    Businesses are already leaving California in droves (over 500 last year), and yet the local radio and TV outlets parrot the government’s line that recent revenue shortfalls are because of “early tax refunds”.  Jeff S.’s comment is exactly correct.  The voters of this state need to wake up and “throw the bums out” or we are indeed headed for bankruptcy.

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