California Loves to Tax the Wealthy

I have to admit that I've been focused on coronavirus and have largely failed to keep up with what is going on in Sacramento. Then I was listening to a Joe Rogan podcast and heard that he plans to leave California for Texas. He mentioned a number of reason, which included that Los Angeles is too crowded and that the state was going to increase taxes.

Newsweek (Jul 27) reported:

In May, the comedian landed an exclusive $100m deal with Spotify that will see his podcast, The Joe Rogan Experience, removed from all other platforms and only be available on the audio streaming service. Seeing as its one of the world's most popular podcasts, this is a pretty big deal.

Rogan's new $100m Spotify deal would be subject to a 13.3 percent income tax in California—but Texas is one of the seven U.S. states that forgo individual income taxes. This means that Rogan's relocation could see him save $13 million in tax breaks. 

Rogan concern is around a proposed Sacramental Bee (Aug 3) marginal tax increase: 

Assembly Bill 1253 would bump the rate by imposing three new surcharges on the state’s highest earners: 1% for taxable incomes over $1 million, 3% for incomes over $2 million and 3.5% for incomes over $5 million, meaning California’s wealthiest could pay 16.8% on their taxable income.

Combined with federal income tax, top earners would pay 53.8 percent of earnings above $5 million to the IRS and the state.

California's desire for tax revenue now goes beyond just an increase in marginal tax rates. The Sacramental Bee (Aug 13) reports:

The Democrats’ most recent plan would levy a 0.4% tax on Californians with a net worth of $30 million or more. The legislation would affect about 30,000 residents, less than 1% of Californians, Bonta said, and generate $7.5 billion for schools and the state’s social safety net. 

Okay, who bets that when they mention schools, they really mean saving teacher pensions?

As reported by Fox Business (Aug 14), even if someone leaves the state, they would continue to pay the wealth tax for 10 years, adjusted down by 10% for every year out of the state. 

If this wealth tax passes, I wonder how it would apply to Joe Rogan's $100 million Spotify deal. I doubt he gets the money upfront (which makes me think the Newsweek $13 million tax cut is likely false). Would California argue that since the deal was signed when he was in California that any income he gets from this Spotify deal would be part of a wealth tax?

Now we have to remember that the wealthy pay a significant percentage of California's income tax. Sacramental Bee (Aug 3) reports:

In 2015, households earning $1 million or more paid 40% of the state’s income tax. They represent the top .4% of households.

The top 1% — people earning $500,000 or more — paid about 50% of the state’s total income tax that year, according to the Legislative Analyst’s Office.

There are around 11.5 million households in California. So 0.4% of households would be about 50,000.

Of course, CalMatters (Aug 13) reports the general assumption by liberals:

But history suggests raising income taxes doesn’t drive large numbers of wealthy people away. The Stanford Center on Poverty and Inequality looked at past tax increases, including the 2004 millionaires tax, when voters approved a 1% tax increase on income above $1 million, and Proposition 60 in 2012, which raised the tax rate on the top income bracket from 10.3 percent to its current rate of 13.3, the highest in the nation. Those increases, researchers said in a 2018 paper, led at most 0.04% of the state’s top earners to leave.

Let's be honest, at some point, the wealthy will leave the state. You can't just keep increasing their taxes without it impacting their lifestyle at some point. And also, since these are millionaires, are they simply able to increase their income to offset increases in taxes?

Also, due to the pandemic, employees are learning how to be productive while not being in the office. Who is to say that the tech titans won't start setting up office space in Texas? Also, since actors, musicians, and sports stars have limited periods of time to make money, wouldn't their financial advisors suggest that they leave California if these tax proposals succeed? You can say that hardly any of the wealthy left California due to pass tax increases, but at some point there has to be an inflection point where the wealthy do in fact leave because of greatly improved technology allowing work from home scenarios and marginal amount of income being sent over to Sacramento.