Two Stanford economists have studied the impact of those increases, suspecting they were having a real influence on top earners. The Wall Street Journal reports their findings, a story I can’t link you to as it is behind the WSJ paywall, I’m reading it on Apple News. Some quotes:
[Prop. 30] raised the top marginal rate on taxpayers with more than $1 million of income to 13.3% from 10.3%. The top rates on individuals earning more than $250,000 also rose between one and two percentage points.Two things to remember, most people who are wealthy are smart about money and try to minimize taxes. Also, they can (and do) afford the help of skilled CPAs and money managers who spend their lives studying how to hang onto income.
The likelihood of a wealthy resident moving out of California increased by about 40% after Prop. 30.
The economists examined how incomes changed in response to the tax hike by comparing filings from in-state high earners to non-residents. They found that “California top-earners on average report $522,000 less in taxable income than their counterfactuals in 2012, $357,000 less in 2013, and $599,000 less in 2014.”
The study estimates that outward migration and taxpayer behavioral responses erased 45.2% of the expected revenue gains from the tax hike on top earners. This is especially relevant since liberal economists argue that the rich don’t care about marginal tax rates and raising the top income rate to 70% won’t affect revenue or incentives to work.
I remember various ruses high earners used when income tax rates were higher. These included money-losing businesses and farms called “tax dodges.” Plus many high earners can choose where they will call home, often in a low-tax state.
Economist Arthur Laffer was correct, raising tax rates often results in less tax revenue as people choose leisure over labor or elect to receive income in other, perhaps deferred ways or in lower tax locales.
