New tax increases in California stir debate about adding to exodus

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Published December 22, 2012

| FoxNews.com

A vote last month that makes Californians among the highest-taxed residents in the country is sparking debate about whether the Democrat-back initiative will backfire, by forcing high-earners to join a long exodus from the cash-strapped state.

Democratic Gov. Jerry Brown successfully pushed the tax increase by suggesting that high-earners must shoulder the largest burden in bailing out the state, particularly its debt-ridden public school system. 

However, high unemployment and government debt have already sent residents fleeing in large numbers – an estimated 225,000 annually for the past 10 years.

And the recently passed tax increase for individuals making more than $250,000 each year could further shrink the tax base for California, which for years has struggled with gaping deficits. The state, though, estimates the new hike will help close the deficit from a projected $16 billion shortfall earlier this year to roughly $1.9 billion by the end of fiscal 2013 next summer.  

Much of the debate has raged among California advocacy groups and in the editorial pages of the state’s biggest and most influential newspapers.

“More is never enough for these people,” Kris Vosburgh, executive director of the Howard Jarvis Taxpayers Assoc., said about the Democrat-backed increase. “It’s hard to believe people will not leave.”

Vosburgh said his group is not an advocate for the wealthy and argued the tax increase atop other bad economic factors – including high gas and sales taxes – also have small and large businesses packing.  

“With high taxes and heavy regulations, it’s just difficult to produce those widgets at a lower price than somebody in, say, Texas,” he told FoxNews.com on Tuesday.

Syndicated columnist Walter E. Williams wrote in The Orange County Register: “California politicians can fleece people in 2012, but there’s no guarantee they can do the same in 2013 and later years. People can leave.”

Ex-Californians over the past decade have already put roughly $5.67 billion into Nevada’s economy as well as $4.96 billion into Arizona and $4.07 billion in Texas, according to Manhattan Institute study titled “The Great California Exodus: A Closer Look.”

The September 2012 study -- based on data from the state and such federal agencies as the Internal Revenue Service – also argues that “chronic economic adversity,” including powerful unions, has driven away businesses.

The liberal-leaning think thank California Budget Project declined to talk about the issue but points to a study that concluded Hollywood executives, Silicon Valley entrepreneurs or other higher-earning Californians will not leave, based on the aftermath of a 2005 so-called “millionaires tax” increase.

Executive Director Chris Hoene told The Los Angeles Times that the Stanford Center of Poverty and Inequity study “dispels one of the most persistent myths about state tax policy.”

The California tax increases that passed in November, known as Proposition 30, are expected to generate at least an additional $6 billion annually – and lay claim to 2012 income.

The rate hikes range from 9.3 percent to 10.3 percent for individuals making $250,000 to 10.3 percent to 13.3 percent for those making at least $1 million annually.

In addition, the top state-federal tax rate for Californians in 2013 would climb to 52 percent should Washington fail to resolve the looming fiscal crisis and federal rates return to those from the Clinton-era, according to a recent study from Lynchburg College’s School of Business and Economics, which takes into account tax increases related to ObamaCare.  

Among the most likely places of exile would be neighboring Nevada, which has no state income tax.

Such an idea is not that far-fetched, considering California resident and pro golfer Tiger Woods famously took his millions to Florida, another of the seven U.S. states with no state income tax.

The tax increases from Proposition 30, which also included a sales-tax hike, expire after seven years, but it might be too late.

Dan Walthers, a columnist for The Sacramento Bee, said it’s too early to tell but argued California-based Google is using an offshore address to avoid taxes on overseas income so “wouldn’t Google millionaires also avoid state taxes on themselves if they could?” 

Editor's Note: An earlier version of this article misstated California's latest deficit projections. The article has also been updated to clarify who is affected by the new tax increase.  

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