One of the oldest and most persistent right-wing myths is that higher taxes lead to job losses and flight of wealthy taxpayers to other states. But as the California Budget Project explains, it’s a myth without truth:
In the early 1990s, when 10 percent and 11 percent personal income tax rates were in place for married taxpayers with taxable incomes of $200,000 or more who filed joint tax returns and single taxpayers with taxable incomes of $100,000 or more, the number of taxpayers subject to those rates increased substantially, even while the total number of taxpayers declined. The number of California’s married taxpayers with incomes of at least $200,000 rose by 33.4 percent between 1991 and 1995, and the number of single personal income tax filers with incomes of at least $100,000 increased by 40.2 percent….
Similarly, the rise in the number of California’s millionaire taxpayers has outpaced the total increase in personal income taxpayers since the passage of Proposition 63 in 2004, which imposed a 1 percentage point income tax rate on personal incomes over $1 million to fund mental health programs. In addition, data from the Internal Revenue Service show that for more than a decade – at least – taxpayers who remain in California from year to year have considerably higher average incomes than taxpayers who leave California for other states, and this income gap has widened for most of this decade.
What’s behind this? The truth is that over the last 30 years, the rich have gotten richer. And the rich like to stay in California, for obvious reasons. If you have the financial means, California is one of the best places in the entire world to live. There’s a reason many of us who aren’t financially secure stay here, even though we might be much better off in another state.
Just over the hill from me is Pebble Beach and Carmel, which haven’t seen a flight of the wealthy to other states because of taxes. Neither has Beverly Hills, or Woodside, or Atherton, or Rancho Santa Fe, or Coto de Caza, or whatever other wealthy enclave you can think of in California. Nor have the folks with less wealth but who are still subject to the 10% rate.
Further, as the CBP showed, during the 1990s the higher rate didn’t stop California from turning around from what was a very bad recession. The 11% rate of the Pete Wilson era fueled economic growth by providing enough public services and education to enable California to dominate the 1990s economic boom, an investment that echoed into the 2000s.
One of the most important principles of taxation is you go where the money is. In today’s California, the money is at the upper end of the scale. A higher tax rate will help California create jobs and economic recovery, without causing an exodus of the rich. What have we got to lose?