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Taking One for the Team « Back to Story
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I'm delighted that my comment below about the surprise 83.6% net increase in the top net California income tax rate ran today as a letter to the editor in the WALL ST JOURNAL.
Here's the fact that EVERYONE (including me) initially undervalued concerning Mickelson and CA state income taxes. Starting in 2013, Mickelson's NET state income tax for 2013 has jumped 83.6%!
He's why. Until 2013, state income taxes were deductible for federal income tax purposes. Starting in 2013, for the really rich, this deductibility largely goes away (as does deducting property taxes and many other deductions). For people with over $2 million of income, they lose 80% of such deductions.
With Proposition 30 passed in November, CA has raised its income tax on the wealthy 29%. The combined tax increase is breathtaking. Do the math, and you find that in 2011 the net CA income tax for Mickelson was 6.7% In 2013 his net CA income tax is 12.3% -- an increase of 83.6%.
The big taxers love to point to a bogus study by the Stanford Center on Poverty and Inequality (the name says it all regarding their objectivity) "think tank" which concluded that the 1% millionaire's tax increase in 2005 had little or no effect on millionaire's leaving. While the study has since been largely discredited, the magnitude of that 2005 increase vs. the 2013 CA increase is worth considering.
In 2005, the maximum CA income tax went up from 9.3% to 10.3% for those with over a million dollar income. At the time, the CA income tax was fully deductible. With a 35% maximum federal tax bracket, that meant that the increase cost the rich a net 0.65%.
With the changes I've discussed, the 2013 NET CA income tax increase is 5.6% -- 8.6 TIMES HIGHER than the 2005 increase. Only a fool would think that such a massive increase would still not motivate many of the wealthy to depart the "Golden State."
Parenthetically might I add that California abounds with such fools.
Bon temps jolie -- While you make many good points, you accept as fact the greatest single liberal canard about California -- that Prop 13 starved state and local governments for revenue. It's the all-purpose excuse progressives tirelessly trot out to defend their repeated failures running the state.
Few question this assertion -- almost none have looked at the actual revenue history of Prop 13 property taxes. But fortunately I have. Turns out it's all buncombe.
Here's a piece I publish periodically on this matter:
A Defense of Proposition 13 Property Tax Revenues
by Richard Rider
Chairman, San Diego Tax Fighters
Updated 1 December, 2012
Phone: 858-530-3027 Blog: www.RiderRants.BlogSpot.com
When it comes to gathering sufficient property taxes, Prop 13 is no problem at all – except for profligate spenders. Look at the history of my San Diego County – a history which pretty much reflects the history of property taxes in the urban/suburban counties that hold over 85% of California's population.
According to the SD County Tax Assessor, in 1977 – the year BEFORE Prop 13 took effect (when everything was working great, according to Prop 13 critics) – our countywide property tax revenue was about $639 million. In the 2011-2012 fiscal year, our county assessor reported real estate property tax revenues of $4.550 BILLION. For every property tax dollar collected in 1977, the county in 2011-12 collected $7.12. And BTW, according to the County Assessor, since Prop 13 passed, 97% of the pre-Prop 13 county owner-occupied homes has changed hands (and been reassessed) at least once.
During that time frame, our county population has grown about 85%, and inflation has gone up about 253%. Hence property tax revenues today are substantially higher than the bloated PRE-Prop 13 year, even after adjusting for inflation and population growth.
California in 2009 ranked 15th highest in per capita property taxes (including commercial) – the only major tax where we are not in the worst ten states. But CA property taxes per owner-occupied home were the 10th highest in the nation in 2009.
and http://www.taxfoundation.org/taxdata/show/1913.html (2009 latest year available)
To see how CA ranks numerically against the other states on tax, regulation, litigation and other economic factors (with confirming URL’s), go to: w.TinyURL.com/CA-vs-other-states and read the latest updated version of my dreary fact sheet “Breaking Bad – CA vs. the Other States.”
It turns out that, under Prop 13, property tax revenue is FAR more stable than our other forms of tax revenue. Since the start of the recession, income tax revenue has plunged, and sales tax revenue has tumbled.
But property tax revenue seldom goes down AT ALL. Since the year Prop 13 passed in 1978, San Diego County real estate property tax revenue has ALWAYS gone up – every year – until the 2009-10 fiscal year, when it dropped (drum roll) 1.0%. In 2011 property tax revenue slipped another 1.2%, but this 2011-12 year it’s up 1.1%.
This in the 6th year of California’s real estate meltdown! In 2008-09, real estate property tax revenue was actually up 4.1%. Not one person in a thousand knows about this revenue stability – the press has not covered these amazing facts.
Revenue is up because Prop 13 has the little-known added benefit of smoothing out real estate property tax revenue from year to year. Most properties this past year (generally those purchased prior to 2003) had their property tax go up 2%. Add to that the property resales, property improvements and new structures (all of which establish new tax assessment levels), and the revenue stayed rather constant in the teeth of our economic downturn.
Consider what happens without Prop 13 protection: In the real estate boom years from 1998 through 2005, property taxes would have SOARED. Even WITH the Prop 13 limitations, San Diego County property tax revenue collection during this period STILL rose 111%. But then in the last four years, dropping property values would have caused a dramatic plummet in property tax revenues – revenues that governments would now be hooked on – just like we see with our volatile sales taxes, and especially with our hugely erratic income tax revenues. Property tax revenues are CA governments’ one reliable source of income, thanks to Prop 13.
People have been quietly leaving CA for years with all leechy regulations and tax everything that moves and doesn't. I've never lived there, but relatives have. I've been boycotting CA because it more and more seems like a Sodom and Gomarrah cloan.
Richard: The real irony is that if California had lower taxes, was reasonably regulated and had a citizenry consisting mostly of children raised in homes with two parents, with resulting low crime and better education, with a citizenry reluctant to accept government benefits, no public unions and all the rest, there would be an increase in revenue - an enourmous increase.
But taxes - money - isn't the whole story - the basis of Democratic control is power, that comes through doing to the citizens everything articulated in my comment. It's how Democrats can stay in power year after year even as they deliver nothing but induced dependence, crime and all the rest. Democrats do well with poor people because they take measures to ensure that people stay poor - getting people out of poverty isn't a concern - Democrats could care less. After being exposed to Democratic politicans (and being a former Democrat, long time ago) it's on purpose - that the Democratic Party is aware that its policies don't work - heck after half a century who could be so stupid as not to see it? and it not only do Democrats not care, what it is doing is on purpose.
In other words, Democrats have a different agenda than what's traditional. The foundation of power for Democrats is corruption, legal and illegal. Legal corruption by taking tax dollars filtered through public unions and in other ways, illegal corruption in a thousand different ways. Democrats are out to remake society so that power is consolidated in their hands - the evidence for it is out there for all to see.
I really REALLY dislike these people - I've seen first hand how it affects children, and I've seen how truly mean they are - it's an old word but truly descriptive of Democrats on an instituional and especially on a local level - those on the national scene hide it only a little bit better.
And California is truly a Democratic experiment writ large, and its failure - or success, if you are a Democrat, is there for all to see.
California's budget situation was produced by large-scale public investments combined with over-reliance on the income tax through the 1990s and 2000s. The insane property tax freeze ended up forcing costs over to the state government. which multiplied the 2007/2008 crash.
Sales tax in California is sky high. Income tax is sky high.
Property tax is zip, unless you bought recently. Business property taxes for mature companies are zip. It's crazy.
Michelson complains. Big whoop. But it's everybody paying crazy taxes to cover for long-time property holders who don't pay anything close to a fair share of the budget burden.
BS Davis, I agree with your premise, but you missed the point(s):
1. The Dem elites want more tax money. If raising taxes "too much" reduces their net collections (directly from the rich and indirectly with the loss of their economic stimulus), they might want to lower the tax to the "sweet spot" that provides more income. NO WAY do they care a fig about fairness or justice -- they just care about getting the most tax dollars they can. On that I'm sure we agree.
2. A quite different demographic may develop an new-found interest in protecting high earners -- fanatics obsessed with CA pro sports teams. IF they connect the dots (and I'll try to help them with this epiphany over time), they might figure out that higher CA taxes on the wealthy have hurt "their" teams. And that's something fans DO car about. VERY much.
Consider: Uber-liberal Oregon just reduced somewhat their millionaires' tax -- from 11% to 9.9%. They didn't suddenly go soft on soaking the rich. They have simply concluded that they will make MORE with a lower tax rate. And they hope to entice a few (clueless) CA tax refugees to move to Oregon.
"Voters for Prop. 30 who thought “soak the rich” sounded like a great idea may soon regret their choice."
WRONG WRONG WRONG - WRONG!
There is no media out there that will be pointing out that "soaking the rich" was a bad idea, there will also be no politican doing the same, and since the Republican Party is so weak what it says doesn't count. Even as the State sinks the citizens of California will never connect higher taxes to anything bad, since the control of the means of communication by Democrats means that no one will be making that connection, at least no one of any significance and reach (sorry to say that).
The traditional American spirit of rugged individualism and independence is DEAD in California - it is dying in the rest of America, along with any hesitation to take benefits from the government - Democrats have used their decades of control of government and media to recreate the citizenry to one that is more conducive to Democratic control. In the new Democratic State of California dependence on government is good, as is being raised by one parent, in a community where high levels of crime is the norm, where government workers make far more than their counterparts in the private sector (hence the jobs are more desirable), and where the only people who have money are those at the very top (the good rich), while the rest (excepting gov't workers and the party apparatchiks) are the hordes of poor, too stupid to know what they have lost - or they came from elsewhere and never knew any different, only that here is better than there, at least for now. After a few years it won't be possible to tell the difference.
Californians will NEVER wake up and realize that soaking the rich is a mistake - the blame for financial problems will always fall elsewhere. Those who leave should leave, but the ulitmate irony is that Californians who do leave bring their voting habits with them. Such is the effectiveness of conditioning by Democraic media.
The sad thing is that competent government works - who would have thought that it would be possible to halve the welfare rolls with competent, conservative reforms, who would have thought that a (for the most part) competent Rudy Giuliani could make crime a non-issue in New York, who would have thought that Ronald Reagan in 1980 could add millions of jobs, and make America prosperous again after Carter destroyed the economy.
California could be great, but because Democrats have access to public funds through public unions as well as control of the means of communication means that it won't be. California is firmly in the hands of the Democratic Party which is rapidly transforming the society to one more amenable to continuation of Democratic control. This means using tax and regulatory policy to convince those who disagree with the new California to leave, importing and making up the lost population (with the help of hapless Republicans who are soon to lose Texas and elsewhere through the new amnesty law) through immigration, legal and illegal, using welfare policies and media to encourage single parenting, which creates dependence on government and a cycle of that dependence, as well as high crime which further induces dependence, and as a side benefit causes low educational achievements so that the citizenry is too dumb to understand how badly they are being used, and finally to keep everyone divided and hence more pliable. It means doing things Democrats do, with the predictable result that California, once so prosperous, is now permanently economically challenged.
The foregoing is all to the good for Democrats, who see the new society as one where they will get ALL the votes, and none of the blame, since they control the means of communication.
"Regret" soaking the rich? It is a laughable concept - anything that happens, albeit detrimental by "old" standards, is all to the good in the new Democratic society being created. No matter how bad it gets, the people of California will never understand why their society is doing so poorly, even as the state becomes economically Detroitified. Tourism will be there maybe, but tourism is the business of the third world.
You wonder what it would take to wake people up in California that their choice of leaders is what's dooming them to future poverty. With media firmly in the hands of those leaders, and the society becoming ever more pliant, with the alternative - Republicans - in the hands of inept, incompetent bunglers like Boehner (a man who is working full time for the position of minority leader in the House), don't look for change - ever, in a million years.
Who would have that it was so easy to fool all of the people all of the time?
Here's a little known fact -- the California income tax is quite LOW. For some.
If you have a spouse and two minor kids, no deductions and a $50,000 income, you pay $73 state income tax. If you make $40,000, you get credits back-- you pay LESS than zero income tax.
Net result? Like the federal income tax, over 40% of Californians pay little or no state income tax. They LOVE the income tax. And that's way they could be so easily gulled into raising taxes on the hated rich.
BTW, the tax increase on the rich in CA starts zooming up at $250K, jumps again at $500K and hits the 13.3% peak at $1 million. We DESPISE rich people in the "Golden State."
Not going to go well for anyone.
The WS JOURNAL just did an excellent op-ed on the Mickelson saga, and currently there are over 200 reader comments (and growing).
Right OHN. Defeat the taxers and eliminate the socialists.
In fact high taxes stifle initiative, investment and the will to work hard. Low taxes do the opposite. Indeed any state or country whichtakes more than half of what a man or woman earns is in severe need of a moral compass.
The liberal media need to stop banging on about tax havens and tax evasion and ask why government spending resembles an alcoholic set loose in a brewery.
It is indeed shameful that Phil, commenting on the public tax structure is taken to task by the liberal media. Taxation has been a problem for years and the political hacks fail repeatedly to give time and effort to real tax reform. My anger is that Phil never should have been sorry....for speaking his mind.
Richard-what you should do is start getting signatures for all kinds of crazy propositions and have Californians vote on them
1. Get a proposition on the ballet to tax everyone 100% of their income
2. Get a Proposition to give the public sector union employees free cars and gas for the rest of their lives
I am convinced that the only way to reform Californian is to bankrupt it (I am sad to say this) so welfare, public sector unions all have to make reforms.
High taxes=high civilization? The OECD reported that the total tax on earnings in the UK was 32.5%, practically the same as the USA at 29.5%. (OECD, 2011) Then, how is it that the rate of crime and especially violent crime is higher in the UK? Why was crime in the USA higher in the 1970's than in the 1950's even though taxes for the average person were considerably higher?
Don certainly speaks volumes of ignorance. low taxes = low civilization? How does one explain Detroit, New York, DC or any other major city filled with animals and crime?
Mickelson acted the fool, he should have stood his ground, spoke against unfair taxation and moved to do something about it.
Leaving California is the first step.
A 13% CA skim changes Phil M's net take by 28%, once unloaded.
Richard is right...Phil will soon be departing, because just one year's CA tax savings can buy a nifty $7M villa in Nevada, Texas, or Florida, where your R.E. money goes a lot farther anyway.
Walter Wriston puts it best:
"Money goes where it is wanted, and stays where it is well treated, and that's all she wrote."
Don, I presume that because "Taxachusetts" has a low 5.5% income tax, that's also a "low civilization" state. Good to know.
Don says: "Taxes are the price we pay for civilization - low taxes = low civilization, high taxes = high civilization."
I see. So liberal income tax-free Washington state is a "low civilization." You don't think much of your progressive allies, apparently.
Indeed, according to your "criteria," ANY state has a low civilization compared to CA, as they all have lower taxes.
Okay, okay, 1 to 3 states IN THE AGGREGATE arguably have higher taxes (though this is a subject of debate). New Jersey, for instance. Oh yeah, that's a "high civilization" state. And Illinois. Plus NY state.
Every other state is some sort of "Deliverance" backwater, according to you. My my!
good to see the great Richard Rider getting a wider audience via The City Journal! .
What BS! Taxes are the price we pay for civilization - low taxes = low civilization, high taxes = high civilization. California has a culture and cultural venues well worth having, and paying for. You want low taxes? Go live in Arkansas or some other Bozart Desert State - Kansas maybe. Or Florida.steditz
Backtracked and apologized for what? these people should stand up and be counted. They earn the money, it is criminal for government to take such a big slice.
Lefty speaks volumes
I specialize in comparing California with the other 49 states. I maintain a dreary fact sheet with facts (often rankings, such as can be seen below), complete with URL's for verification. I update this jewel every two weeks or so.
If you want to see the updated version, I try to keep that current at
The fact sheet is also available as a two-page Word file upon request -- a wonky handout.
I have a blog one can subscribe to for free:
www.RiderRants.BlogSpot.com -- complete with a daily email update option if you want.
Finally, I'm rather active on Facebook, using my "page" as a blog, if you are so inclined.
Information is power, and that's what I try to provide. I let others concentrate more on the solutions (though I'm never shy about displaying my strong libertarian free-market bias).
What I find to be amazing is that Democrats like Mark Leno and Tom Ammiano are looking for "new revenues" translate new taxes on top of Ca high state tax and new federal taxes
because of these high taxes, there is a large underground ecomony. Ammiano and Leno want to create a new government agency to combat the underground economy (just what Ca needs a new government agency)
by the way Maxine Waters has never held a private sector job in her entire life but yet she is a millionaire please explain that
Thanks Richard for helping your fellow CA fight the fight against the democrats who obviously do not paid any taxes and who do not own a business, so of course they will never realize the damage that they cause
Here's a bit more on California taxes:
Prior to Prop 30 passing, CA already had the 2nd worst state income tax rate in the nation. Our 9.3% tax bracket started at $48,029 for people filing as individuals. 10.3% starting at $1 million.
Now our retroactive (to 1/1/2012) “millionaires’ tax” rate is 13.3% – including capital gains. Increased taxes now start at $250K.
CA now has by far the nation’s highest state income tax rate. We are 21% higher than the 2nd highest state (Hawaii), 34% higher than the 3rd highest state (Oregon), and a heck of a lot higher than all the rest – including 7 states with zero state income tax.
CA is so bad, we also have the 2nd highest state income tax bracket. AND the 3rd. Plus the 5th and 7th. http://taxfoundation.org/sites/taxfoundation.org/files/docs/ff2012.pdf Tables #11 & 13
Mickelson's mistake was saying it out loud.
Millions of less wealthy and famous Californians have voted with their feet.
California is being hollowed out.