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Wealthiest Californians are leaving the state. It's bad news for the economy
- madboston 3y agohttps://archive.ph/XhSEE https://archive.ph/XhSEE
- fwungy 3y agoDid they figure out how to tax California residents who leave the state? They were trying.
- JumpCrisscross 3y ago> tax California residents who leave the state Unless Sacramento has high conviction of the law surviving court challenges, they shouldn’t reättempt it. Its mere discussion is a powerful forcing function for decampment.
- jonathankoren 3y agoAnother diaeresis user! Truly the most underrated of all punctuation.
- briantakita 3y agoNo, but the Franchise Tax Board is aggressive about going into former state residents' bank accounts & cleaning them out without notice for an "estimated income tax"...even if the former resident filed in another state for the year that they moved out onward. So have your paperwork in order or get a CPA to get your money back if the FTB does a surprise withdrawal from your bank account.
- tikkun 3y agoThat seems surprising - can you elaborate?
- briantakita 3y agoThe FTB will attempt to contact you by mail at your last known address about not filing for the year you moved out onward. If the FTB is unable to contact you, the funds in the bank account will be seized for the "estimated income tax"...probably a few years later. Perhaps you can give the FTB a notice that you moved out of the state before this happens? It would be nice if the FTB contacts your bank about contacting you before the seizure, but that's not what they do. It can be particularly inconvenient if they seize all of the funds (and they will if that's what is estimated to be owed), as it may be difficult to hire a CPA in that event. Hopefully the paperwork is in order or a CPA is already hired.
- schmookeeg 3y agoI left CA in 2016 and experienced none of this. I assume there is some specific trigger, or taxpayer ghosting, needed to trigger this?
- briantakita 3y agoI don't know what the trigger is. I know of 2 people this happened to including me. My CPA mentioned that CA was "very aggressive" & he had dealt with this before. I had already filed in a different state far away from CA for multiple years after moving out. The seizure happened on a Friday late December & my CPA got all of my funds back by the next Tuesday. Did you notify the FTB that you moved out of CA? Edit My friend recently had his funds seized from when he moved out for the 2016 year. He got 1/2 back but his paperwork is not in order & got cleaned out. Currently does not have enough to hire a CPA to get the rest. Btw, I had already done several of the steps listed in https://www.modernfp.com/blog/leaving-ca https://www.modernfp.com/blog/leaving-ca I will never move back to CA. Another word of warning from a CHP officer. If you happen to drive in CA as a former resident, make sure you have your out of state license on you. If you forget your wallet, you could be cited for driving with an expired license.
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- g42gregory 3y agoSo basically, you need to make sure you close this particular bank account before you leave the state?
- briantakita 3y agoThe FTB will track you by your SSN. If you open a new bank account, the funds in that new bank account will be seized.
- Natsu 3y agoThey already have ways: https://www.modernfp.com/blog/leaving-ca https://www.modernfp.com/blog/leaving-ca They may yet expand them further, we'll see.
- devnulll 3y agoThis seems like the classic boom/bust cycle of capitalism and government. One upon a time, CA had things like free education through the UC and CSU system, and a tax rate that seemed similar to other states. With the adoption of Prop 13 they eliminated much of the property tax revenue, and then ratcheted up the income and sales tax to pretty much max amounts while only collecting property tax from new(ish) home buyers. The Trump tax cuts then penalized upper-middle-class tech workers, all while continuing to reduce benefits. Utility deregulation has led to rolling blackouts during potential windstorms, and poor forest management has brought about some big fires. Other states are also in on the zero-sum game that is bidding tax breaks to get companies to relocate. This seems like a normal cycle of capitalism. If CA wants to change the game, they could consider options like the return of low-cost (free) schooling for CA residents, normalizing their property tax structures, or opening a single-payer healthcare system to CA residents.
- spankalee 3y agoProp 13 is indeed the root of many issues here. The problem is that there's no way it'll be voted away, no matter how bad it gets.
- dragonwriter 3y agoProp 13 has been modified several times since being passed; its not impossible that it would be modified in a way which would increase overall property tax revenue, but procedurally its basically impossible for that to be relevant to the short-term funding shortfall.
- amluto 3y agoI think a modification that separately tracked the prop 13 basis and a current price and charged taxes on the current price for anything that isn’t the owner’s primary residence could plausibly tax — after all, no one would get priced out of their own home as a result.
- ip26 3y agoIs there wide agreement it is misbehaving and ought to be changed “somehow”? Perhaps it could be modified. There are other ways to achieve the basic objective without creating the same side effects. For example, Colorado’s TABOR has a very similar objective with a very different mechanism that slows property tax growth but does not pressure people to stay put in their current home.
- digdugdirk 3y agoI find it fascinating how the US government pits every state against each other. Yes, people are leaving a high tax state to a low/no tax state. But (just using Texas as an example) what happens when Texas' growth based ponzi scheme stops growing? Not to mention the infrastructure - The electrical grid is already creaking, and the commuting situation is already absurd in and around the major metro areas.
- asylteltine 3y agoI agree. Just get rid of states it’s so damn stupid. Why do we need 50 sets of laws?
- stjohnswarts 3y agoThat's literally impossible given the way our Constitution and government is written. The only way would be a civil war by those who don't like the ideas of "states" and I don't think there are enough of those individuals.
- cdot2 3y agoThe states are semi-soverign entities. The federal government does not have the authority to disband them.
- JumpCrisscross 3y agoMechanically, America could convert to a unitary state with a Constitutional amendment. Practically, very few want that. American states individually command resources on the scale of rich nations.
- AlbertCory 3y agoThe states predated the federal government. They created it by ratifying the Constitution.
- thinkski 3y agoSo that various sets of ideas can be tried as experiments. Also, so that groups of people with different values and ideas can live in their own worlds and not have to reach consensus on everything. I believe a lot of the division in the country could be solved by returning more decisions to state and local levels. Only centralize what the constitution requires.
- hedgehog 3y agoThis reads like a disjointed opinion piece but it does link to one piece of research on the topic by Joel Kotkin that looks a bit more grounded in data: https://joelkotkin.com/wp-content/uploads/2022/01/Restoring_the_California_Dream.pdf https://joelkotkin.com/wp-content/uploads/2022/01/Restoring_...
- roenxi 3y agoSomething I picked up in era of machine learning is why humans are so terrible at making long term decisions - if artificial neural nets model how our minds work even a little bit it is a miracle that humans are capable of symbolic logic and long-term decision making outside of ritual. That makes this sort of thing annoying. The odds of arriving at "why did this happen?" through rational discourse are very slim. However, I do recall a number of years ago people making arguments like "lol what are they going to do, leave?" and it appears that was wrong. And I would encourage people who are gung-ho about US debt overall to reassess their beliefs in light of that - it doesn't look like the money was invested productively to me and it is a dangerous assumption that there will be wealthy people around to pay off someone else's stupid spending. But the real problem here is not that the current policies don't create enough wealth. That is a problem, but the real problem would have been a decade or more ago. It is like when the local dam runs out - risky decisions and bad principles would have taken root decades ago that were, in hindsight, risky and reckless.
- stjohnswarts 3y agoThe governemnt isn't run by meritocracy, it's run by politicians looking to maximize their power and wealth. They could be perfectly logical and learn to compromise amongst all but the most extreme outliers of the various parties, however, that's not the case. It basically becomes all or nothing for them (and their party) and the government limps along behind that. It's nothing like machine learning unless you were to put those as goals of the algorithm.
- laszlojamf 3y agoNevada has _no_ income tax? How do they pay for anything? In Sweden, income tax accounts for 60% of the entire tax base. Do states in the US have other revenue streams other than taxes? Because I just assume that corporate tax is also a non-starter
- louislang 3y agoSeems like gaming tax makes up for the loss of personal income tax.
- KyleBrandt 3y agoThat are other taxable areas besides income, for example property and sales taxes.
- dukeyukey 3y agoNevada has a (low) property tax, a (medium) sales tax, and takes in a lot of money through sin taxes on stuff like cigarettes, alcohol, and the casinos in and around Vegas.
- brucethemoose2 3y ago^ US States often orient their taxes to take advantage of local economies, attracting certain types of businesses or residents. Sometimes the reasons are political or weird quirks, like in Texas where taxation is (by design) very difficult to change under their constitution.
- vlovich123 3y agoSales and property taxes
- stevenwoo 3y agoSeveral US states have no income tax, they usually make up for it with property tax (on real estate), licenses(think gaming) and sales tax. Some states that famously have no income tax have a higher tax burden on most people due to the way this works out.
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- mcny 3y agoWhat worries me is California refuses to raise property taxes. That and strip local government of any and all say in where and how to build homes and buildings. I think that's what is a necessary part of any solution. Raise property taxes because without it, your income tax will have no upper bound.
- fortran77 3y agoYou want more taxpayers to leave?
- aml702 3y ago[dead]
- ethanbond 3y agoNo we want people sitting on extremely valuable, underutilized land to leave. They’re already paying very low taxes. It will make room for people to come in and pay income tax and more efficiently utilize the land.
- 29athrowaway 3y agoHow do you want to "efficiently utilize the land" if there is no water? The central valley aquifer is dry.
- scoofy 3y agoThe people who want to "utilize the land" already live here... in shoe-box apartments... with roommates... in their forties. Most of them are literally just the children of the people living on that under-taxed land. Who may finally get the tax benefit sometime in their 60s that their parents got in their late 20s.
- JumpCrisscross 3y ago> if there is no water False condition. California has plenty of water, as evidenced by its wasteful farming practices, which consumes 80% of it [1]. As with most of its problems, California’s retail water “shortage” is a policy choice. [1] https://water.ca.gov/Programs/Water-Use-And-Efficiency/Agricultural-Water-Use-Efficiency https://water.ca.gov/Programs/Water-Use-And-Efficiency/Agric...
- aml702 3y ago[dead]
- lettergram 3y agoAs someone who left CA and ended up in TN - yup. No income tax, better internet, better entertainment. I’m frankly confused how long CA will continue towards its own destruction.
- dahdum 3y agoI was very impressed with Nashville as a tourist, felt like a booming economy with a bright future. People seemed generally upbeat and hopeful. No doubt there are downsides (and I had a limited viewpoint) but I can see the appeal.
- mcny 3y agoIs Tennessee expanding municipal fiber? A casual search shows that Tennessee receives USD 1.46 for every USD 1 it sends to the federal government. The rest of us seemingly pay for Tennessee's refusal to increase personal income and peoperty taxes. All infrastructure requires maintenance and the statistics I get hung up on is that it costs over a million dollars to pave one lane mile of road. This is something we need to pay every thirty years. Think about how much road we have in the US or in your case just Tennessee. Do you think Tennessee can pay for all public roads (other than the interstate) with state and local money? How do you avoid taxes from going up while also avoiding infrastructure from crumbling?
- lettergram 3y agoThere’s a lot to unpack there, but TN has no income tax, a moderate sales tax and low property taxes. That said, they don’t offer much (which is fine). Infrastructure is not really expensive compared to social programs. Maintaining infrastructure is often way cheaper than building new infrastructure. Where as maintaining social programs are massive year-over-year. Look at California's expenses: https://open.fiscal.ca.gov/transparency.html https://open.fiscal.ca.gov/transparency.html Most is healthcare (>=50%), followed by education (~25%) Compare that to Tennessee https://www.tn.gov/transparenttn/state-financial-overview.html https://www.tn.gov/transparenttn/state-financial-overview.ht... If you look at Tennessee education is (>=40%) and healthcare is second (~25%). From what I’ve seen the massive church network in TN combined with targeted social programs work well for TN.
- CodeWriter23 3y ago> What worries me is California refuses to raise property taxes. Not true. Every time a property is sold, the taxes are reassessed. And in CA, that always means an increase.
- forrestthewoods 3y agoCalifornia has the highest or second highest poverty rate in the country when you account for cost of living. The way California has been run is an absolute embarrassment.
- fullshark 3y agoIt's crazy how poor I feel in this state, namely northern california. Basically the state is for anyone that bought a house 20+ years ago, or multi millionaires. Everyone else is squeezed to the point they see no option but to move.
- dehrmann 3y ago> With investors and high-income taxpayers receiving substantial compensation in the form of stocks, last year’s sluggish stock market accounted for a major share of the decline in state income tax revenues. There might be something to the article, but that's a year out of date. The Nasdaq was up 43% in 2023. It makes me wonder how much of the article might have already played out.
- dehrmann 3y ago> Tax filers in the top 1% of income, earning around $1 million and above, have typically accounted for 40% to 45% of the state’s total personal income tax revenue One problem with very progressive taxation is you become dependent on relatively few people, possibly with their own income sources undiversified. If these people move, the stock market has a flat year, or the tech sector gets hit, that's a lot of money, even if 95% people in the state are still doing ok. >> It’s probably going to be some combination of cutting back spending and raising taxes The article almost acknowledges this, but if taxes really are chasing away people, even more taxes gets you into a death spiral.
- throwup238 3y ago> The article almost acknowledges this, but if taxes really are chasing away people, even more taxes gets you into a death spiral. Maybe for a city like Detroit but California has something that most people, including most rich people, really want: great weather and lots of accessible nature. The other problems are solvable but geography is destiny. This is the first article that has enough concrete data to make me worried but we've been through this before and the state is in a much better place than it was 20 years ago with Davis and Schwarzenegger. All of this has happened before and all of this will happen again.
- TMWNN 3y ago>One problem with very progressive taxation is you become dependent on relatively few people, possibly with their own income sources undiversified. If these people move, the stock market has a flat year, or the tech sector gets hit, that's a lot of money, even if 95% people in the state are still doing ok. Such as what happened to New Jersey when one person, David Tepper, moved to Florida.
- thanhhaimai 3y ago> In the tax filing years 2020 and 2021, the average gross income of taxpayers who had moved from California to another state was about $137,000 Let's assume it's $150k for 2023 (high) > What’s different is that in each of the prior two years, more than 250,000 Californians with at least a bachelor’s degree moved out, while an average of 175,000 college graduates from other states settled in California That's 75k net loss, assuming 100% employment (high) > In California, the top tax rate for personal income is 12.3%. Assuming all loss income was at the highest bracket (high), the total loss in tax revenue: 75k * $150k * 0.123 = $1.38B Realistically, the number could be lower because the calculation above is conservative. > State budget analysts recently projected a record $68-billion deficit in the next fiscal year because of a 25% drop in personal income tax collection in 2023. That's $1.38B vs $68B I think we all agree that California has lost population, but I feel like the article is manipulating statistics to drive a misleading narrative. The deficit is real and needs addressing. It's more likely due to income dropping (lower salary due to lay off, lower realized capital gains, lower passive income, etc), rather than the "wealthiest" are leaving the state.
- nkurz 3y agoGood points! You probably realize this, but in case others don't, assuming a 12.3% tax rate may overstate things even more than just being "conservative". Only the portion of income greater than ~$700K is charged at this rate, with everything less than that being charged at lower marginal rates: https://www.nerdwallet.com/article/taxes/california-state-tax https://www.nerdwallet.com/article/taxes/california-state-ta.... Someone who earns less than $350K (and the first $350K for everyone) is at a maximum marginal rate of 9.3%. This makes your conclusion even stronger---the article seems misleading.
- seanmcdirmid 3y agoYa, someone single making $150k/year is paying an effective state income tax rate of 7% (and an effective federal income tax rate of 17.82%). But I get the very conservative simplifications parent was making to make their point.
- lettergram 3y ago
- rossdavidh 3y agoSo, speaking as a former Californian (albeit briefly, 1989-1992) and current Texan (over 20 years), I think that, while there are many substantive and important policy differences between the two states, none of them are the core reason why people leave California to come to Texas (or other states). The core reason is that, even compared to places like Florida and Texas that have seen property prices go up a lot lately, California's urban areas are hideously expensive. The only way that I know of to fix this, is for a bunch of people to leave those high-density, urban areas. They could move to inland California, but if they're leaving the city they're in, they often decide to go to another (less expensive) city, in another state. This is the most direct solution to the problem of property being too expensive in California. Not saying that California has perfect policies or anything, but their biggest problem is the runup in property prices caused by past successes.
- beej71 3y agoClearly people can afford the real estate there since it's selling, yet I agree with your point, confusingly.
- rossdavidh 3y agoI admit it is odd at first glance, but I can think of a few possible explanations: 1) they cannot actually afford it, and will find this out in a few years 2) they are being bought as investments by REIT's and such, not by real people 3) they are being bought by foreign money as a way of parking wealth in the US, because it is perceived as a safer place to have your money than the home country There could be other explanations, as well, but these are three that come to mind.
- seanmcdirmid 3y agoIf 5 people can afford the real estate and 15 people cannot, it isn't that weird that 5 people are staying and 15 are leaving. That the price equilibrium is reached means that a lot of people can't afford those prices, which will result in a net loss of population until a population equilibrium is reached. And it isn't weird for very expensive but smaller places like Aspen to have already reached both of those equilibriums, so their population is relatively stable but they are still very expensive places to live.
- EPWN3D 3y agoThe SALT deduction used to serve as a kinda-sorta cost-of-living adjustment for the federal tax code. Tax brackets don't consider cost of living, so taxing someone earning $200k in CA the same as someone earning $200k in, I dunno, Nebraska, isn't exactly fair. But since higher-CoL areas tend to have higher taxes, the CA earner at least got to deduct the enormous state taxes they paid from their federal return. The TCJA capped the SALT deduction at $10k for married filers, which is an absolute joke to anyone who pays taxes in CA or NY. But that cap goes away in (I think) the 2025 tax year. I don't think CA has to do anything but wait out the clock and make damn sure that its representatives stonewall any legislation to extend the SALT cap. And yes, I know that econonmists absolutely love the SALT cap because it's a tax on non-poor people. But the point of the tax code is not to extract every last penny from non-poor people -- it's to make sure everyone is contributing fairly to a well-run society at all levels. If you want states to be the laboratory of democracy, that's fine, but you can't do that by penalizing states that have high taxes in order to pay for services that the federal government doesn't provide. And that's precisely what the SALT cap does (and was explicitly intended to do).
- ultrasaurus 3y agoIt's not a surprising trend, there's been a steady build up of tax reasons that have made California a worse deal: - removing the SALT deduction hurts Californians (and NY most) with their high taxes and high wages - Capping the mortgage deduction to $750k only matters in places where houses are over $1MM (like California) - Because even federal taxes are progressive, if you can work remote make half as much money in a place that costs half as much, you'll take home proportionally more