The California tax burden is driving people out

Tyler Cowen.

"That is the topic of my latest Bloomberg column, here is one bit:

California’s highest income tax rate is 13.3%. That is in addition to a top federal tax rate of 37%. California also has a state sales tax rate of 7.25%, and many localities impose a smaller sales tax. So if a wealthy person earns and spends labor income in the state of California, the tax rate at the margin could approach 60%. Then there is the corporate state income tax rate of 8.84%, some of which is passed along to consumers through higher prices. That increases the tax burden further yet.

And this:

Researchers Joshua Rauh and Ryan Shyu, currently and formerly at Stanford business school, have studied the behavioral response to Proposition 30, which boosted California’s marginal tax rates by up to 3% for high earners for seven years, from 2012 to 2018. They found that in 2013, an additional 0.8% of the top bracket of the residential tax base left the state. That is several times higher than the tax responses usually seen in the data.

These high-earning California residents seem to have reached a tipping point: Maybe many of them could afford the extra tax burden, but at some point they got fed up, read the signals and decided the broader system wasn’t working in their interest.

Overall, Proposition 30 increased total tax revenue for California — but not nearly as much as intended. Due to departures, the state lost more than 45% of its windfall tax revenues from the policy change, and within two years the state lost more than 60% of those same revenues.

Here is an AEA link (gated) to the original research."