Good News California You’re #1 Again, In Taxes

From The Sacramento Bee:

Thanks to passage of Proposition 30 last month, high-income Californians would pay the nation’s highest marginal income tax rates — nearly 52 percent — if President Barack Obama and Congress fail to make a deal to avoid the so-called “fiscal cliff,” according to a new study.

Without a fiscal cliff deal to the contrary, the Bush era tax cuts on high-income taxpayers would expire next year and rates would return to their previous levels.

Gerald Prante, an economics professor at Lynchburg College in Virginia, and Austin John, a Lynchburg economics student, calculated marginal tax rates — the highest rates on the highest levels of income — for all 50 states. They combined state, federal and, where applicable, local income taxes, plus payroll taxes for Social Security and Medicare and included the deductibility of some taxes.

Proposition 30 added three percentage points to the marginal state income tax rate for California’s highest-income taxpayers, bringing it to 13.3 percent. That action raised California over other high-tax jurisdictions to a marginal rate of 51.9 percent, slightly higher than New York City’s level. Hawaii was the only other place with a calculated rate above 50 percent.

All Things Digital notes that the retroactive rate increases are intended to capitalize on the Facebook IPO, but with all marginal rates (including capital gains) now over 50% they’ve just created a real powerful disincentive for start-up firms to locate in the struggling state.

Nothing terrifies investors or entrepreneurs as much as the concept of expropriation. When governments decide to expropriate legally obtained assets, entrepreneurs who worked tirelessly to build businesses and investors who risked scarce capital end up with little to nothing for their troubles. In fact, developing countries often get saddled with country risk premiums, making it harder for them to attract capital because the mere threat their governments will someday seize profitable companies or industries keeps investors away.

So it’s all the more puzzling that California, home of Silicon Valley and the densest concentration of entrepreneurs in the nation (possibly the world) would pass Proposition 30 in last month’s election. Regardless of your personal views on the issues of taxing and spending, there is one thing that cannot be overlooked. Prop 30 includes a gigantic retroactive tax increase on legitimate capital gains and ordinary income that dates back to Jan. 1, 2012.

The top marginal rate jumps by 29.13 percent to a staggering 13.3 percent of income. Oddly, California doesn’t distinguish between ordinary income and capital gains in the way the federal government does. The result is that we have nearly doubled the 15 percent federal capital gains tax rate, and this applies to income earned in the past, for which taxes have already been paid.

By enacting their “millionaire” tax (really a clone of the Obama $250,000 and above plan) California has gambled that the won’t chase away all of those likely to pay the tax. Good luck with that…

Shortlink:

Posted by on December 6, 2012.
Filed under Economics.
Doug Johnson is a news junkie and long time blog reader, turned author.

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  • TomInCali

    You object to the government imposing taxes, and now you’re complaining about the people voting to tax themselves? It’s because we’re in a deep fiscal shithole (thank you, Republican Schwarzenegger), and unlike the children in Congress we’re trying to get ourselves out of it while also paying for the government services that we want to retain.

    • herddog505

      How do you mean, “the people voting to tax themselves”? I think “the people” and “tax themselves” don’t mean what you think they do:

      As of 2010, the state relied upon 144,000 households, 1 percent of taxpayers, for 50 percent of total state income tax. If Proposition 30 passes, the top 10 percent of earners would be responsible for over 80% of the projected income generated – a fact that Gov. Brown and other advocates of the bill readily acknowledge.

      http://m.atr.org/article.php?id=7222

      If the figures cited are true – even partly true – what “the people” in California have voted for is not unlike what “the people” of the South voted for a couple of centuries ago: “We want something for nothing, and you have to provide it for us.”

      • Brucehenry

        Haha yes, taxing the rich is just like slavery, lol.

        • Carl

          poor, poor rich white people. They have it sooo hard these days.

          • http://www.rustedsky.net JLawson

            Wait till they leave. Then won’t California be just a little slice of heaven without all those icky people with money hanging around!

          • Carl

            As long as Meg Whitman is among them, I’m happy. She may be stupid enough to run for Govenor again.

            Wait a minute, what am I saying? After she’s proving herself to be a lousy manager I’d welcome her to run again.

            Whitman — Brown. Brown — Whitman.

            California made the right choice.

          • 914

            Not really.. They just move away from the smell..

          • jim_m

            Thank God we don’t tax rich black people. Oh, that’s right, because you think that only white people are rich.

            Racist

          • Carl

            Actually it’s the white folks who didn’t vote for Obama. Black folks overwhelmingly elected him.

            Or have you forgotten how badly you clowns read the electorate in the last election? I hope so.

          • Vagabond661

            Does that mean the blacks who voted for Obama are racist?

          • http://www.traveLightgame.com/ ljcarolyne

            YES

          • http://www.traveLightgame.com/ ljcarolyne

            YES

        • lasveraneras

          Let’s take a look at history, shall we. Two principle references to taxation in ancient times are the story of Joseph in Egypt from the Bible and the treatment of serfs during the middle ages. Both instances involved the seizure of 10-25% of the earnings of the affected population. Thus, the forcible expropriation of over 50% of one’s earnings for California residents can be characterized as form of slavery, i.e. the power over another and control of that persons life (e.g. rationing of health care under Obamacare), liberty (e.g. 90,000+ pages of enforceable laws and regulations in the Federal Register), and fortune (e.g. confiscatory taxes… for non-cronies, that is). Just because a population just voted for more slavery doesn’t mean they are not slaves.

        • herddog505

          When one person claims a right – a moral right – to another’s labor (money being a measure of labor), then yeah: it DOES sound rather like slavery. You like to yap about the RAAAAACIST South, so you ought to be familiar with the lingo our ancestors used to justify laying claim to the labor of others.

          And if slavery is too extreme a term for you, then let’s stick with garden-variety communist rhetoric, with the difference being that, instead of the rich capitalist exploiting the worker, it’s the more numerous (in some cases) workers exploiting the rich.

          It’s not very fair, and it sure as hell ain’t very smart. We can look at places like Zimbabwe and Venezuela to see how it ends.

          • Brucehenry

            Yes, you got me. Raising taxes by 3% on income above $250K/yr is SLAVERY! it’s COMMUNISM! Obama is Mugabe! Obama is Chavez!

            If one of these newly enslaved families made $250K last year and paid X dollars in taxes, and this year they make $253K, this year they’ll pay X plus $90!!

            Absolutely just like the antebellum South. Or Bolshevik Russia. Or something.

          • Carl

            The latest news, which you’ll never read on this site, is that the tax rate threshold is actually $300,000 not $250,000.

            President Obama’s insistence that marginal tax rates rise for families making more than $250,000 has convinced millions of affluent Americans that they are likely to be writing larger checks to the government next year. But many of those families have no reason to fret.

            A close look at the president’s plan shows that a large majority of
            families making up to $300,000 — as well as hundreds of thousands of families with even larger incomes — would not pay taxes at a higher marginal rate.

            http://www.startribune.com/politics/182457731.html

          • Brucehenry

            You’re on fire tonight.

    • jim_m

      That’s right. Cali elects a GOP governor (who is hardly a solid conservative) and despite decades of leftist dominance of the General Assembly it is all the fault of the GOP. Excuse me while I reconfirm my notion of you as ignorant of history and/or dishonest.

      CA has been dominated by left wing politics for decades they are merely reaping the whirlwind of their policies. For ages CA has built destructive regulatory and tax policies that have driven out business (see my comment below on CA’s environmentalist disaster). You can’t build anything without having lefty fools complaining about some bird, fish or insect that is going to be harmed by the project. CA legislators took a trip to Texas to understand why it was that businesses were fleeing CA and going to TX. Apparently, they came away empty handed.

      CA is a liberal political failure. Note that I am not talking party politics, because the GOP in California is hardly standing up for conservatism in any meanigful way.

      • jim_m

        As for the environmentalists, I find it amazing that lefties who believe in evolution and who believe in science can be so scientifically ignorant and illiterate.

        We have evidence of mass extinctions taking place for millenia before man arrived. Somehow, with the advent of man we are to expect that all extinctions (part of a natural evolutionary process if you ask an evolutionary biologist) are to cease. All extinctions are to be ascribed to the influence of man.

        Never mind that extinctions occur because different species compete for survival and that in many cases man has nothing to do with it and even when man does there is no scientific proof that human intervention in either direction is appropriate.

        The California left has bought into this anti-human, anti-technology, anti-progress ideology and seeks to create a static environment where nothing changes. They seek to create a state of nature that is itself essentially unnatural. In doing so they have created laws that prevent economic growth and drive business out of the state.

        This has contributed to the coming cataclysm that is the CA economy. Enjoy it lefties. It belongs utterly and completely to you. Everyone knows it. You will deny it but everyone her in the US and throughout the world understands CA’s failure as a failure of left wing political ideals.

    • retired.military

      Calif is in a deep fiscal hole thanks to the unions. And with that union pension bomb they have coming up it is only going to get worse. I dont care if the people of Calif vote to raise taxes on themselves as long as they dont move to Texas.

  • Par4Course

    The people of California, both directly through ballot initiative and indirectly through their elected representatives, have decided on the high level of government services they want. The state has been running huge, multi-billion dollar deficits. The only choices are raising taxes or cutting services. The California voters have chosen the first alternative. Unfortunately, higher taxes won’t insure greater revenues if the negative economic effects of being the highest tax state offset the effect of higher rates.

    This is also President Obama’s call for higher rates will probably not result in as much new revenue as he an Tim Geitner are predicting. Historically, the Reagan and G.W. Bush tax cuts produced record high federal revenues – but Congress, under both parties, was still able to spend faster than the revenues rose. I have no doubt that Obama will do likewise, being able to maintain $1 trillion+ deficits regardless of the amount of tax or revenue increases.

    • Carl

      Governor Brown inherited a mess once GOP Arnold Schwarzenegger finally left — and Jerry Brown put the state back on track – leading California away from the brink of bankruptcy.

      Good News? You want good news? 27 months of employment growth. Housing market steadily improving. And we’re talking real jobs – not the minimum wage job growth the state of Texas has enjoyed as a the result of the $6 Billion in tax incentives and tax breaks they’ve given business – that’s $6 Billion out of the taxpayers pockets.

      Prop 30 temporarily raises the personal income tax on couples earning more than $250,000 annually for the next seven years. That will generate about $6 billion in annual revenue.

      Voters also endorsed Proposition 39, which changes the way corporate income taxes are calculated on some multi-state companies and raises
      $500 million a year.

      Annually that’s a total of $6.5 Billion. And the truth about the impact on California’s economy?

      Proposition30, the tax-raising measure voters approved by a comfortable margin in last month’s election, will slow economic growth in California but won’t derail the fledgling recovery, a study released Wednesday said.

      “There won’t be a major impact on the California economy, but there will be
      some effect,” said Jerry Nickelsburg, senior economist with the UCLA
      Anderson Forecast, which issued the report as part of its quarterly
      survey of the statewide and national economies.

      The alternative? In the 2008 election Brown’s opponent was Meg Whitman.

      Yes, that would be the same Meg Whitman who is currently CEO of computer giant HP. She’s been busily driving that company into ground in less than a year.

      On Nov. 20, H-P said it would write down the value of its Autonomy acquisition by $8.8 billion. It blamed more than $5 billion of that on “serious accounting improprieties, disclosure failures and outright misrepresentations” at Autonomy. In other words, H-P claimed Autonomy had fleeced it like a hapless Enron stockholder.

      “The board (including Meg) was supportive of the deal at the time, and
      Meg was supportive of the technology as she became CEO; she still is
      today,” HP spokesman Michael Thacker said in an e-mail.</blockquote.

      She'll be out on her ass in another 3-6 months. She drove that company into the ground with her mismanagement.

      Voters made the right choice with Jerry Brown in 2008, and made the right choice again approving Propositions 30 and 38. Leading the nation – as usual – just as California lead the nation in a tax revolt with tax rollback Proposition 13 back in 1980.

      It took the rest of the nation 30 years to catch up with that. Fortunately the nation is moving forward with tax hikes for the rich.

      Poor, poor rich white people. The angst must be excruciating…

      • GarandFan

        “Governor Brown inherited a mess….”

        Yeah. And the DEMOCRATIC majority in the state legislature had NOTHING to do with it. Right Carl?

        • Carl

          Correct. California’s Democratic majority had nothing to do with it, because in California it takes a 2/3rds majority to raise taxes and pass the budget. So California’s REPUBLICAN MINORITY EFFECTIVELY SHUT DOWN efforts to raise taxes and clean up the budget mess.

          Yet, Californians are discontented, to the point of disgust. Mostly, they are angry at their government, especially the legislature, which is so polarized it couldn’t agree on a budget until Gov. Jerry Brown slashed and burned state services. It takes a two-thirds vote in the legislature to raise taxes, and the Republicans (like their counterparts in Washington) would not vote for any such increase. So the governor cut money for schools, universities, health care, social services, parks and practically everything else the state is involved in. This is not good news for those who depend on state aid.

          http://www.pbs.org/newshour/rundown/2011/11/gridlock-grips-california-government.html

          The Republican legislators in California ran the state’s finances into the ground – just as Meg Whitman ran HP into the ground.

          But that’s history. Seeing the stranglehold Republicans had on the state legislature, voters in the 2012 election pushed enough rich, white Republicans out of office to take back the 2/3rd majority in the legislature.

          Just as voters in the 2014 election will push enough rich, white Republicans out of the House to take back control.

          Sucks to be you rich, white Republicans… lol.

          • GarandFan

            “Sucks to be you rich, white Republicans… lol.”

            Another intelligent comment from a liberal. Looks like you covered all the bases.

          • Carl

            “Sucks to be you rich, white male Republicans… lol.”

            There, bases covered.

          • GarandFan

            As I said, another “intelligent comment”. Democrats are guiltless. And Gray Davis never happened.

          • 914

            ‘Just as voters in the 2014 election will push enough rich, white Republicans out of the House to take back control.’

            What if the blacks push back?

          • retired.military

            Well Carl, The dems dont have the republicans to worry about anymore. They have a supermajority. Sorta like how Obama had one for his first 2 years and we saw how well that went.Lets see how California is doing in 4 years after Obama gets through with the country.

            As far as rich white republicans. They left california years ago. Along with just about anyone else who could afford to. I anticipate more leaving the state as well with this latest insanity.

          • Carl

            Anyone who wants to leave this great state in order to save some sheckles – good riddance. Let them go fight mosquitoes in Florida.

            Heck, with the latino population growing in California the way it is those kind of folks would be leaving soon enough anyway.

            Fact is California attracts top shelf talent in several, millionaire-making industries. You want to make millions in software, tech hardware, movies, television – you come to California and you pay the price.

            The tax is a temporary 7 year thing. It’ll take a vote of the people to extend it. Maybe they will or maybe they won’t, but I don’t see people moving out of California just because they pay 3 percent more in state income taxes. There are too many benefits to living in California to go away for a lousy 3 percent.

            Just doesn’t make sense… but hey, stranger things have happened. Like Clinton raising the tax rates then presiding over an economic boom that was largely centered in California. Wait… Obama wants to raise tax rates too… hmmm, yeah – I don’t see this having too great an effect. California will be booming soon.

          • Brucehenry

            Another good one. Give ‘em hell, dude.

      • Vagabond661

        I would venture if you look at policy in California, it’s not a conservative policy. It’s a liberal policy. and apparently, it’s not doing well.

        • Carl

          Look at how “conservative” Meg Whiman ran HP.

          She’ll be out on her ass in another 3-6 months. She drove that company into the ground with her mismanagement.

          Voters made the right choice with Jerry Brown in 2008, and made the right choice again approving Propositions 30 and 38. Leading the nation – as usual – just as California lead the nation in a tax revolt with tax rollback Proposition 13 back in 1980.

          It took the rest of the nation 30 years to catch up with that. Fortunately the nation is moving forward with tax hikes for the rich.

          Poor, poor rich white people. The angst must be excruciating…

          • Vagabond661

            It might take 30 years for the rest of the states to catch up to California’s debt. because debt is the only reason for tax hikes.

      • jim_m

        Yeah because we know that Gray Davis did such a great job that the voters wanted to keep him on. Oh wait, he was recalled! The first governor of the state to ever be recalled. He was doing such a great job the voters cut his term short to get rid of him.

        I am sure that Davis must have left the state in fantastic condition if the voters thought he was doing such a great job that he didn’t need to stay for the whole term.

        This is just more evidence that the left doesn’t remember history beyond yesterday’s breakfast. If that long.

        Blaming your poor performance on your predecessor is nothing more than a cop out. Like obama, Davis had a full term to make any changes he wanted. He failed. Funny how we didn’t hear Schwarzenegger complaining about the mess Davis left him. Funny how we never heard Bush complain about the mess Clinton left him. Both could have done so. Fact is that the GOP believes in personal responsibility and in getting things done. Not in blame shifting and whining.

        • Brucehenry

          So California voters were wise to recall Davis, but fools to enact tax policies with which you disagree?

          Schwarzenegger GOT HIS JOB by “whining” about the mess Davis allegedly left him. And I’ve heard plenty of Republicans claim 9/11 was Clinton’s fault. There was even a TV movie on ABC a few years back that pretty much claimed that.

          Beyond that, what mess could Bush plausibly claim Clinton left him? A $200 billion surplus?

      • LiberalNightmare

        Whatever we do-dont forget to blame a republican.

        • Carl

          Heck teh Jim_m is blaming Gray Davis, the California governor from 13 years ago. LOL… that’s a riot.

      • Brucehenry

        Good job, Carl.

  • Vagabond661

    All of Hollywood should move to California to show their support of this tax.

  • http://www.rustedsky.net JLawson

    The Law of Unintended Consequences…

    http://blogs.telegraph.co.uk/finance/thomaspascoe/100021542/it-isnt-just-millionaires-who-are-leaving-britain/

    Money is portable – and California hasn’t yet managed to chain down their income producers, much as they nominally hate them and wish to tax them.

  • LiberalNightmare

    Im completely in favor of this move.

    Let it burn.

    • Carl

      Agreed. Burn the MF down.

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