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Wealth Out-Migration from California increased 41% following State's tax hike on "The Rich"

Updated: Oct 25, 2019

"Higher taxes" doesn't always mean "higher tax receipts." Especially when the people paying most of the taxes flee your state.

In 2012, California Governor Jerry Brown signed a tax increase into law that promised to rake in massive windfalls from the state's wealthiest individuals. The new law increased rates on the highest income earners to 10.3% on income above $250,000, 11.3% on income above $300,000, and 12.3% on income above $500,000. Governor Brown promised a windfall gain of $6 billion more in tax revenue per year thanks to the new law, but a new study from the National Bureau of Economic Research shows that the outcome was well short of the prediction.

The NBER studied personal income tax returns from 2012 to 2018, and compared those the the years prior to the passage of the new tax law. Their findings show what myself, and many other advocates against taxation have been warning against for years.

Prior to the passage of the law, the "rich" were already leaving California. After all, California was already one of the highest taxes states in the US. One simple thing seems to remain true: The rich will only take so much, and then they will leave.

Prior to the laws passage, the rich were leaving, or "out-migrating" at a rate of 1.5% per year. Yes, that means that over 1% of the wealthy were leaving california every year. That might not seem like much, but if you look at a long enough time horizon, it could prove to be very dangerous for a state's economy.

The previous year's rate of out-migration was 1.5%, but that rate increased to 2.12% in 2013, just one year following the tax increase. Again, this might not seem like a large number, but that's a 41% percent increase in the out-migration rate in just one year following the tax-hike.

People leaving is not the only problem. The largest problem is that they are taking their income with them. The average reported taxable income decreased by over $500,000 per year in those making up the top income bracket, meaning that those making the most money were in fact leaving.

In just a few short years following the tax increase, the original projection in increased tax receipts was cut by 45%. That's right, California is already making half of the projected increase in tax receipts, and that number is likely to get worse considering the rate at which wealthy people are fleeing the state.