Economist Art Laffer explains in Investors Business Daily.
According to a new report from the Golden State’s Franchise Tax Board, the top 1% of earners paid $25.7 billion in state income taxes in 2007. Two years later, the most recent for which data are available, that figure dropped by half — to $12.3 billion.
Researchers note that the economic downturn contributed to this drop. But that’s not the only cause. A huge number of high-income taxpayers have simply left the state.
Between 1992 and 2008, California suffered a net loss of 869,000 tax filers. About 3.5 million moved into California, while 4.4 million left.
Those that left were disproportionately wealthy. The average adjusted gross income for people leaving the state over that period was $44,700. Meanwhile, the average person moving into California posted income of just $38,600.
So California lost wealthier, more productive residents. And poorer, less-productive folks took their places — some of them, at least.
Smothered under a growing thicket of taxes and regulations, the Golden State’s entrepreneurs and top earners have sought friendlier climes — taking their incomes and the taxes they pay with them.
For many people, moving out of California is equivalent to getting a big raise — because their tax rates plummet. Of the top nine states Californians are flocking to, the average top personal income tax rate is 3.44%. California’s is nearly triple that, at 10.3%.
Also, among those nine states, the corporate tax rate averages 4.59% vs. California’s 8.84%. And their combined state and local tax burden is 9%, versus California’s 11%.
Similarly, if tax rats get to be too high, people will just work harder at getting their capital out of the country. In the case of businesses, they will stop hiring people here and instead open factories and plants in other low-tax countries. It’s socialism that causes outsourcing – taxing and regulating businesses causes them to leave or expand elsewhere.