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POLITICS

Actually it’s quite easy for millionaires to move out of California

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Politics,Beltway Confidential,Conn Carroll,Politics Digest

The New York Times has a story on California’s recent tax hikes out Thursday, Adam Nagourney reports:

With the new year, big earners are confronting a 51.9 percent federal-state income tax hit on earnings over $1 million, the result of a confluence of new tax-the-rich levies imposed by California and Congress in the closing days of 2012. That is officially the highest in the nation. And at 13.3 percent, the top-tier California income tax is, in addition to being higher than any other state, the steepest it has been since World War II.

Though no one expects traffic jams at 30,000 feet as panicked millionaires make for the state line, the wealthy are once again grumbling about abandoning California for less punishing tax climates.

Cristobal Young, an assistant professor of sociology with the Center on Poverty and Inequality at Stanford, conducted a study last fall that concluded that tax rates had little effect on where millionaires choose to live.

Mr. Young said he suspected that few, if any, millionaires would leave or stay away because of the tax increase. More likely, he said, they would find ways of reducing their tax burden, with loopholes or income avoidance, or simply reduce their work.

“I suspect the accountants are busier this year, but I don’t think the moving companies are getting a boost,” Mr. Young said. “Moving out of state is actually one of the most costly responses they could make. California’s high-income earners are clustered in coastal cities far from state borders. Moving to Nevada or Texas or Florida is a very big life change, and means leaving behind family, friends, colleagues and business connections.”

Actually, no it doesn’t. Growing up in Oakland, California, a coastal city with clusters of high-income earners, I knew plenty of families that worked and went to school in the Bay Area, but as far as the IRS was concerned, they “lived” in Nevada. These families all owned a second, although I guess it was technically their first, home on or around Lake Tahoe (a three hour drive away), and they would identify that home as their primary residence for tax purposes. How often does this happen? How hard does the IRS crack down on such families? I don’t know.

But I do know that according to a recent Manhattan Institute study of California’s emigration problem, Nevada was the top destination for wealthier emigrants. From that study:

The data show aggregate income moving into and out of California in roughly the same pattern that people do. There are some differences because some migrants are wealthier than others, so the movement of dollars does not precisely track that of individuals. For example, while Texas took in the largest number of former Californians between 2000 and 2010, it was Nevada that received the largest share of formerly Californian income: some $5.67 billion in income shifted from California to the Silver State during that decade.

And that was before California had the nation’s top marginal tax rate!

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