Urban Legends Die Hard

In discussion of AB 1836 (Furutani) in the Assembly Committee on Revenue and Taxation on Monday, some lawmakers raised the specter of millionaires fleeing California in response to higher tax rates on wealthy earners. As we’ve blogged about before, the claim that high-income people flee California for states with lower personal income tax rates amounts to nothing more than yet another urban legend. Once again, let’s look at the facts. 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. In contrast, the total number of joint filers declined by 6.7 percent during this period, and the number of single filers fell by 7.3 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.

While we’d never argue that the wealthy come here to pay more in taxes, there’s no empirical evidence to support the claim that they leave California in order to pay less.

– Alissa Anderson

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