One quarter of those surveyed considering moving out of state A quarter of the residents in California’s most affluent communities are considering relocating out of state in response to the increase in state income taxes, according to a report released today by the National University System Institute for Policy Research (NUSIPR). A scientific poll (n=401) conducted by Competitive Edge Research for the National University System Institute for Policy Research from March 4-6, 2013 shows that 13% of the state’s residents are somewhat considering a move, 12% are very seriously considering vacating the state, and 1% are already moving out to minimize their personal income tax burden.
The survey finds that these sentiments, while more often held by Republicans, conservatives and higher income residents, are not limited to them. In fact, the biggest factor in explaining whether or not someone is contemplating leaving the Golden State is whether they said they knew a family member or friend who had made a similar move. This social exposure factor is a stronger predictor of move consideration than any other factor, including income, support for conservative candidates, or the level of familiarity with the tax increase. This suggests the potential for a “snowball” effect: the few residents who initially leave create exponentially more who contemplate moving until a sizeable exodus occurs. The finding that social influence plays a big role in tax avoidance behavior is also exciting and dovetails with recent research on social networks.
The survey also found that residents are contemplating other strategies, such as increasing their charitable contributions and investing in more tax-free bonds, to reduce the impact of the increase in state income taxes.
In November of 2012 California voters passed Proposition 30 which temporarily increased the state’s sales tax rate and raised income taxes on individual Californians with incomes greater than $250,000 and families earning more than $500,000 in taxable income. Anecdotes throughout the state indicated a level of dissatisfaction, most notably comments from California resident and pro golfer Phil Mickelson’s comments prior to the Farmers Insurance Open golf tournament in January. NUSIPR undertook the research to find out just how prevalent such views were.
To focus the survey, NUSIPR used IRS records to target specific zip-codes in the state known to contain a high percentage of affluent taxpayers. More than 400 Californians were surveyed and the survey has a margin of sampling error of plus or minus 4.9%. NUSIPR’s full report and the survey results can be found http://www.nusinstitute.org/assets/resources/pageResources/NUSIPR_CA_Tax_Burden.pdf
About the National University System Institute for Policy Research
Based in San Diego, the National University System Institute for Policy Research, (NUSIPR) is a non-partisan organization that formulates and promotes high quality economic, policy, and public opinion research so as to improve the quality of life enjoyed by the region’s citizens.
Hopefully this survey will help wake up people to the danger of “soak the rich” tax policy. With luck, it gets wide dissemination. And it might very well UNDERSTATE the problem.
It it appears that there’s one factor that almost no one outside the high end tax preparation field is yet aware of — and therefore is difficult to poll. It’s a factor that should hasten the departure of the REALLY wealthy (over $2 million annual income) by some unknown degree. Granted, this is a small (but very significant) subset of the survey population.
In 2013 the IRS rules changed on deducting one’s state income tax (and property tax and other itemized deductions) on one’s federal tax return. It phases down — reaching an 80% disallowance of deductibility for income above $2 million. Oddly enough, this change will result in a significantly GREATER net CA state income tax increase than Prop 30 — on the Phil Mickelson’s of California. According to my calculations, In Michelson’s case, his TOTAL California 2013 net income tax increase in income above $2 million is 83.6% above 2011.
Here’s an article I wrote on this earlier this year.
Moreover, I would suggest that the biggest single factor affecting potential departures is the SOURCE of current income for those surveyed. If their income is EARNED and is regional in nature (doctor, retail business owner, etc.), then moving does not save them any taxes on such California income, and it’s quite difficult to set up a new business to make the same income elsewhere.
On the other hand, if they are “bond coupon clippers,” own manufacturing businesses (investors whose income is not dependent upon their location), pro athletes, or “movie stars” who do much or most of their work elsewhere — they are significantly more likely to relocate their legal residence elsewhere (starting with Incline Village!). Of course, one can “depart” for legal and tax purposes but still spend a fair amount of time in CA each year (up to six months), but that’s another matter — and not without pitfalls.
That being said, I don’t think one can reasonably hope to conduct a survey of this income source factor, as most folks would NOT want anyone asking such intrusive questions.
Bottom line — the survey probably slightly understates the percentage that will choose departure as an option — though it’s likely to be more significant among the $2 million+ “crowd.” This is NOT a criticism — just an observation, further validating the concerns the survey raises.
Richard brings up great points on how California tax policy is killing the golden goose. California has amazing potential but Sacramento would rather strangle it in the cradle to buy votes. The reason we haven’t seen a mass exodus is that California possesses two unique features that people are willing to pay the tax premium for: great weather and prestige. The weather will survive but the cool status of living in California is waning as media reports across the political spectrum fill columns with California’s problems. Problems that are never solved despite the state spending supposedly dedicated to them.
My service overseas let me experience many beautiful places but I want to live here. If California policy continues as is, I fear our state will become Venice writ large. Beautiful but decayed structures owned by wealthy investors (celebrities) that visit once a year or brag about it at parties. Venice doesn’t have schools for kids or jobs outside of the tourism industries of food and hotels. California is certainly an ideal place to visit but it can be so much more. I for one want to raise and keep my family here.
I agree Richard, however, I think the majority, especially in northern California will “move” to Nevada, or send more time on “vacations” or at there second or third homes out of state.
I think another situation that has been over looked are new tax shelters. I’m sure there were numerous accounting firms and hundreds, if not thousands of accountants were devising new tax shelters and ways to lower their clients income levels, especially since this is not a millionaire’s tax, despite the propaganda from Ol’ J.B. and his minions in the press and on the left, but a hundred thousandaire’s tax.
I also believe the fact that the tax increase has a lower income threshold than past tax increases will also limit the number of people who move out of state legitimately or as a dodge. I’m sure there were a lot of individuals, including a lot who voted for this tax increase, who had quite the shock when tax time came around, not expecting they would be subject to it.
Marshall, it’s a common assumption that tax shelters will protect the rich — that accountants can make these increases largely go away. True in the 1970’s and part of the 1980’s, but not true today. “Tax shelters” have largely gone bye-bye. And remember, the tax advantage of dividends and even capital gains has been dramatically reduced or eliminated in 2013.
Certainly people can do things to reduce their taxes (buying low interest, surprisingly high risk muni bonds for instance), but that’s not much of a tax dodge. But a guaranteed effective tax dodge (LITERALLY a tax dodge) is to leave CA for (as you and I both pointed out) Nevada — or some other low/no state income tax state.
IF someone is aware of some magic tax shelters out there for the rich to use, let me know. I’m anything but rich, but I sure like to be up to speed in such matters.
A topic I’ve touched on here before: For most Californians, CA is a surprisingly LOW income tax state. We have a uber-progressive income tax system with generous credits and exemptions, so many pay little or no state income tax — or even get tax credit windfalls back each year.
According to my calculations, a family of four (2 dependent kids) making a modest $50K — a family that takes only the standard deduction — will pay only $75 in state income taxes. Hence it is particularly appealing to most of the voters to raise income tax rates — on the folks that make more than they do.
RIchard -I never said that they worked, just that accountants would make money devising and selling them to customers. They almost never work and if by some miracle they do, the FTB and IRS will still find a way to come after you.
There is a state senator from Pasadena, Carol Liu, who with her husband, tried some “sophisticated” tax shelters to avoid paying part of their taxes. Didn’t work, got caught, had some excuse . Naturally, she’s a Democrat who never met a tax increase she didn’t like.
We both agree they don’t work, and a lot of times are borderline scams, but people will still try them nonetheless.