By: Cynthia Kurtz
Posted: 5/28/2014
When the California Legislature talks about taxing the rich, State Sen. Bob Huff likes to say "There is nothing as mobile as a millionaire and his money." It does seem that there would be a tipping point at which people would take dramatic steps - like moving - to protect their money.
How do we know when we have hit that tipping point? We grumble about taxes, the high costs of living, and doing business in California. But California is a great place to live. Do people really move money because of public policies? Is there a measurable difference in the wealth of a state that can be tied to taxes and economic policy? These questions have been topics of much recent debate.
Author Travis Brown recently searched for the numbers to answer these questions in his book, "How Money Walks." Using Internal Revenue Service tax-payer data files from 1995 to 2010, he examined which states gained adjustable gross income (AGI) - the income reported on tax returns - and which states lost AGI. Then he examined the personal income tax structure in each state to see if there was any correlation between the movement of money and tax policies.
What he found is that during those 15 years, Americans moved $2 trillion - yes that is trillion with a "T" - between states. That's equal to the GDP of California, $2 trillion is a lot of money.
It wasn't just that the money moved around. After all, people do move for a variety of reasons. But there were clearly winning and losing states. Some states had substantial net gains in AGI and others experienced net losses.
The winning state hands down, was Florida with a net gain of $86.4 billion. That figure represented money that had moved to Florida from other states not natural growth from residents already within Florida. Where did the money come from? $16.8 billion came from New York and $10.2 billion from New Jersey plus a number of other states.
There may be a variety of reasons that people - wealthy people - move their dollars but let's examine the tax rates. Florida has no income tax. The overall state and local tax rate equals 9.3 percent. Taxes per capita equal $3,728. Florida ranks 27th in the National Tax Burden rankings.
By comparison New York has a top income tax rate of 8.83 percent; a state and local tax rate of 12.8 percent; taxes per capita of $6,375, and is #1 in the nation in the tax burden ranking. New Jersey is not far behind with a top income tax rate of 8.97 percent; state and local tax burden of 12.4 percent; taxes per capita of $6,689 and ranks #2 on the national tax burden list..
How did our own Golden State do? Unfortunately, we were right behind New York as the second largest net loser. California lost $31.8 billion AGI over 15 years primarily to Nevada, Arizona, Oregon, Texas and Washington - all states with substantially lower taxes. That equals over $2 billion per year of lost income. California, with a top income tax rate of 13.3 percent; state and local tax burden of 11.2 percent; taxes per capita of $4,934 ranks #4 on the national tax burden list.
Clearly, taxes make a difference. Millionaires and their money are mobile. That lost income negatively affects all Californians. We can do better.
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