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High taxes drive productive Californians to leave the state.

Old 03-01-06, 09:06 AM
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High taxes drive productive Californians to leave the state.

This is a great article because it talks about how people respond to incentives. Whatever you tax, you get less of. California places special taxes on rich people, so rich people are moving out of the state. And the jobs that they create are moving out of the state with them.


http://www.opinionjournal.com/editor...l?id=110008026

Meathead Economics

Hollywood liberals drive productive Californians to leave the state.

Tuesday, February 28, 2006 12:01 a.m. EST

It takes hard work to drive anyone away from California's sunshine and scenic vistas, but politicians in Sacramento have been up to the task.

The latest Census Bureau data indicate that, in 2005, 239,416 more native-born Americans left the state than moved in. California is also on pace to lose domestic population (not counting immigrants) this year. The outmigration is such that the cost to rent a U-Haul trailer to move from Los Angeles to Boise, Idaho, is $2,090--or some eight times more than the cost of moving in the opposite direction.

What's gone wrong? A big part of the story is a tax and regulatory culture that treats the most productive businesses and workers as if they were ATMs. The cost to businesses of complying with California's rules, regulations and paperwork is more than twice as high as in other Western states.

But the worst growth killer may well be California's tax system. The business tax rate of 8.8% is the highest in the West, and its steeply "progressive" personal income tax has an effective top marginal rate of 10.3%, or second highest in the nation. CalTax, the state's taxpayer advocacy group, reports that the richest 10% of earners pay almost 75% of the entire income-tax revenue in the state, and most of these are small-business owners, i.e., the people who create jobs.


And things may soon get worse, thanks to Rob Reiner, who played the liberal "Meathead" on the "All in the Family" sitcom in the 1970s and now plays the same part in real life. He and his rich Hollywood friends have put an initiative on the state's June ballot that would add a 1.7-percentage-point income-tax surcharge on "millionaires" with income over $400,000, with the proceeds earmarked for universal pre-school.

This isn't Mr. Reiner's first foray into confiscatory tax politics. Last year he sponsored a ballot initiative narrowly approved by voters that imposed a percentage-point income-tax surcharge (to the current 10.3%) to pay for government mental-health subsidies. And in the late 1990s he helped to pass an initiative to raise the state's tobacco tax by 50 cents a pack to pay for children's health care.

All of this has contributed to the trend of wealthy taxpayers disappearing from the state. State finance office data indicate that the number of Californians reporting million-dollar incomes fell to 25,000 in 2003 from 44,000 in 2000. That decline has cost the state $9 billion a year in uncollected tax revenues. The dot-com implosion of 2000 and 2001 no doubt wiped out many paper millionaires, but migration out of the state to escape its hefty tax premium has also played a role. Republican Assemblyman Ray Haynes notes that the average high-income individual can buy a newly built house in neighboring Nevada and pay for it just from the money saved in a year of not paying California taxes.

The state has been here before, as a new report from economist Arthur Laffer reminds us. In the early 1990s under Republican Governor Pete Wilson, the state raised its top income-tax rate to 11%, triggering one of the worst fiscal crises in the state's history. Tax revenue fell as high-income people fled the state, while public debt exploded. That tax surcharge was removed in 1995, but now the state's politicians want to do it all over again.

Ironically, Mr. Reiner sometimes seems to understand the reverse supply-side impact of his tax policies. Last November a coalition of liberal health groups proposed raising the tobacco tax yet again to pay for more public subsidies. Mr. Reiner opposed that increase by arguing that the higher cigarette tax would cost $35 million in revenues because smokers would buy cigarettes out of state. But he refuses to acknowledge that steep income-tax rates also affect taxpayer behavior, as high-skilled high-earners look for better opportunities out of state.

By the way, Mr. Reiner serves on the board of the Children and Families Commission, which oversees the expenditures of the tobacco trust fund. That Commission approved spending $23 million of tobacco taxes to finance TV ads that promote his own new tax-and-spend-on-pre-school scheme. This use of taxpayer dollars to lobby for more taxpayer dollars may violate state law preventing taxes from being used to finance campaign activities. And the Los Angeles Times reports that some $200 million of the children's education fund has found its way into the bank accounts of public relations and advertising firms, some of which are run by friends of Mr. Reiner.

The lesson: Beware liberals promising to tax someone else in the name of helping "children." They'll end up taxing you, while they and their friends benefit. Governor Arnold Schwarzenegger is now under pressure to oust Mr. Reiner from the Children and Families Commission, and it's amazing he hasn't already. While the Governor is at it, how about taking a stand against the June tax-increase initiative?

As much as the popular flight from California might be good for some neighboring states, it's very bad news for the entire United States. California continues to account for about one-sixth of the overall U.S. economy, and its competitive decline will inevitably hurt everyone. If the Meathead tax passes in June, the reverse gold rush out of California will surely accelerate. And Hollywood's liberals will discover again that a state with fewer businesses creates fewer jobs and collects fewer taxes.
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Old 03-01-06, 09:11 AM
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It's fascinating how someone can transform a long opinion piece, where the core argument hinges on the words "may well be", and make it all the fault of "liberals".

If only the world were so cut and dried and monochromatic.
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Old 03-01-06, 09:31 AM
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Amazing how the op can fault libs, esp. since they've been the ones making the laws for only the past 15-20 years.
How outrageous. Can I have a Harummph!
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Old 03-01-06, 09:46 AM
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Another hard hitting news article I see.

It couldn't be the ridiculous cost of living in CA could it? Most of that has to do with availability of housing, not taxes.
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Old 03-01-06, 09:48 AM
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Originally Posted by VinVega
Another hard hitting news article I see.
It specifically says it's an opinion piece... or does the fact it says "opinion" and "editorial" in the link not good enough for you?
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Old 03-01-06, 09:49 AM
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Originally Posted by bhk
Amazing how the op can fault libs, esp. since they've been the ones making the laws for only the past 15-20 years.
How outrageous. Can I have a Harummph!
But the terminator was supposed to take control and show these guys how it's done!!
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Old 03-01-06, 09:49 AM
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Originally Posted by VinVega
Another hard hitting news article I see.

It couldn't be the ridiculous cost of living in CA could it? Most of that has to do with availability of housing, not taxes.
Or maybe the fact that 25 million people live in a desert with only a tenuous supply of fresh water.

BTW, I didn't know Pete Wilson was a liberal.
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Old 03-01-06, 10:01 AM
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Originally Posted by nemein
It specifically says it's an opinion piece... or does the fact it says "opinion" and "editorial" in the link not good enough for you?
I stated my opinion of the original opinion. I'm not buying it as the principle reason.
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Old 03-01-06, 10:06 AM
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I can't understand how some of you fail to see the simple logic in this. It's all about numbers. If you have two adjacent cities, and one has a 1% local income tax and the other has a 2% local income tax, then, with all other things being equal, people will be more inclined to live in the city with the lower income tax. Of course, as you are pointing out, all other things will rarely, if ever, be "equal", but that just means that there are other factors entering into the decision, and the income tax rate is surely one of those factors.

It is no huge stretch to extend this view to the state level. The biggest difference is that moving to an adjacent state because of tax rates is an expensive endeavor, so it is only going to be cost-effective for those with higher incomes (again, with all other things being equal).

As a consultant, I've faced considered state-to-state moves fairly often, and the decision process is simple once you understand the factors. If I'm considering a job with no health care benefits, I evaluate how much it would cost me to purchase my own equivalent health care insurance and factor that into the corresponding salary offer. If the increase in salary doesn't exceed the additional expense I would incur, it's a loss for me. Likewise, if my income tax rate for the new state is higher than my current income tax rate, my new salary must increase by at least that percentage in order to be attractive. If the new income tax rate is lower, I can tolerate a lateral move in salary and come out ahead. It's not the only factor, but you can't deny that it is a factor.
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Old 03-01-06, 10:09 AM
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Originally Posted by Shoveler
It's not the only factor, but you can't deny that it is a factor.
Fair enough.
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Old 03-01-06, 10:11 AM
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It's convenient to make arguments with "all other things being equal" (the study of Economics would be crippled without it), but it's rare that in real life all other things are equal. How can you compare a city in Nevada or Oregon with one in California? Nevada has no coastline; Oregon doesn't have the sunny weather of SoCal. Neither state boasts the vibrant, diverse cultures of LA or SF (I know for some people this isn't a draw), and what of people who remain in the area because of family commitments?

I live where I live irrelevant of the levels of local sales or property taxes, but because of the availability of jobs, social and cultural opportunites, etc. There are many other factors involved than just the level of taxation.
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Old 03-01-06, 10:12 AM
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Originally Posted by nemein
It specifically says it's an opinion piece... or does the fact it says "opinion" and "editorial" in the link not good enough for you?
Somethign I've been wondering -- if grundle had posted this as his own thoughts, rather than a reprint, he probably would have been given a warning from the mods. It's basically a recitation of statistics followed by "we can't prove it, but it's probably the liberals' fault" after each statistic. Why is this sort of thing allowed when it's a reprint?

As an aside, I disagree with the forum policy on blanket statements. If somebody wants to blame death, cancer, and pan & scan on "liberals" or "conservatives" or whoever, let them -- it just makes it easier for me to know who to ignore. But if we're going to have the policy, I don't think there should be an "I was just quoting Michelle Malkin/Michael Moore/whoever" exception.

I also want to make clear that I like grundle and don't want to see him get in trouble.
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Old 03-01-06, 10:13 AM
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Originally Posted by JasonF
I also want to make clear that I like grundle and don't want to see him get in trouble.


I just don't like what I see as complicated circumstances reduced to simplistic, black and white arguments, <i>a la</i> "religion is evil" or "it's all the liberals' fault".
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Old 03-01-06, 10:18 AM
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High taxes are definitely driving some people out of the state. It's also driving out large businesses, not just small business owners.

The cost of living is not very high in some of the inland areas but people leaving are not relocating there as the tax rates are just as high as they are along the coast.

California's constitution kind of requires a balanced budget. Tax and spend liberals have controlled the California legislature for a very long time. When you combine their spending with the stupid voters who don't understand that bond issues don't actually create money you get high taxes.

I myself am considering moving right across the border to the Nevada side of Lake Tahoe if certain business opportunities pan out.
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Old 03-01-06, 10:23 AM
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Originally Posted by wendersfan


I just don't like what I see as complicated circumstances reduced to simplistic, black and white arguments, <i>a la</i> "religion is evil" or "it's all the liberals' fault".
I don't want to be accused of violating forum rules by generalizing, but don't libertarians view very complex social & economic problems in simplistic terms?
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Old 03-01-06, 10:24 AM
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As an aside, I disagree with the forum policy on blanket statements. If somebody wants to blame death, cancer, and pan & scan on "liberals" or "conservatives" or whoever, let them -- it just makes it easier for me to know who to ignore. But if we're going to have the policy, I don't think there should be an "I was just quoting Michelle Malkin/Michael Moore/whoever" exception.
Alot of people were complaining about the partisan bickering/sniping that was going on in the Political Forum. It was to the point where a lot of regulars were saying they weren't coming around any more because of it. In order to help keep things on a friendly/productive level we decided the institute the new rule. Overall it's a balancing act between what is/isn't allowed and I'm sure we don't always get it right but I think things have improved here since the rule went into effect.

BTW it might be best to take this discussion to the sticky thread so if you want to reply please copy/paste this post and continue there.
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Old 03-01-06, 10:26 AM
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I wonder if it's the 'regulars' or just the 'drop bys' who do most of the complaining?
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Old 03-01-06, 10:34 AM
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This opinion piece is a very good example of obtuse reasoning.

The author just assumes that since the number of people reporting million dollar incomes went down that they must have left the state. No real proof is provided to back up that ascertain.

I do give credit for mentioning the dot com collapse since that did of course result in the loss of many million dollar incomes but what isn't mentioned is that for several years after the collapse California's economy was in a downward cycle. That probably accounted for some of the million dollar incomes disappearing also.

What the author can't back up is his ascertain that the people who were once making the million dollar incomes left the state. Maybe many of those people's job situations changed but they still live in the state?

The opinion piece is just another good example of how individuals see what they want to see in order to justify their opinions.
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Old 03-01-06, 10:36 AM
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If it comes from The Wall Street Journal everyone knows it's Gospel.
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Old 03-01-06, 10:40 AM
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Originally Posted by classicman2
If it comes from The Wall Street Journal everyone knows it's Gospel.
God knows they don't have a single biased bone in their entire editorial staff.
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Old 03-01-06, 10:43 AM
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Originally Posted by WCChiCubsFan
What the author can't back up is his ascertain that the people who were once making the million dollar incomes left the state. Maybe many of those people's job situations changed but they still live in the state?
The author did state

The state has been here before, as a new report from economist Arthur Laffer reminds us. In the early 1990s under Republican Governor Pete Wilson, the state raised its top income-tax rate to 11%, triggering one of the worst fiscal crises in the state's history. Tax revenue fell as high-income people fled the state, while public debt exploded. That tax surcharge was removed in 1995, but now the state's politicians want to do it all over again.
Pete Wilson was governor from 1991-1999. The tax increase took effect at a time when the economy was improving and the dot-com bubble hadn't burst yet. Perhaps there are studies quantifying high earners' exodus from the state?
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Old 03-01-06, 10:43 AM
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Originally Posted by WCChiCubsFan
God knows they don't have a single biased bone in their entire editorial staff.
Who would want to read a non-biased editorial writer?
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Old 03-01-06, 10:54 AM
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Despite the R behind his name, Wilson governed as a liberal as evidenced by his tax increase.
The difference between the WSJ and the rest of the old media is that they will admit that their editorial board is on the right while the NYT editorial board will turn blue in the face arguing that they are down the center and unbiased. Dan Rather thought the NYT editorial board was down the center and that is documented in "Bias" with quotes to that effect.
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Old 03-01-06, 10:54 AM
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Originally Posted by wendersfan
It's convenient to make arguments with "all other things being equal" (the study of Economics would be crippled without it), but it's rare that in real life all other things are equal. How can you compare a city in Nevada or Oregon with one in California? Nevada has no coastline; Oregon doesn't have the sunny weather of SoCal. Neither state boasts the vibrant, diverse cultures of LA or SF (I know for some people this isn't a draw), and what of people who remain in the area because of family commitments?

I live where I live irrelevant of the levels of local sales or property taxes, but because of the availability of jobs, social and cultural opportunites, etc. There are many other factors involved than just the level of taxation.
All true, but, having been there, you just have to do your best to remove the "emotional" aspects ("Oh, but I love it here so much!") and do your best to assign dollar values. How much is it worth to me, each year, to live near an ocean? How much would I miss it? If I moved inland, how many times a year would I want to take a week, or a long weekend, and travel to see it, and how much would that cost me?

We've been through that with family, so I understand the process quite well. You can't place a dollar value on family, right? But you have to somehow factor them into the decision. So you decide how much it will cost you to maintain the kind of relationship you want to maintain with the increased distance.

The question "How do you compare a beautiful coastal city to a stark desert city?" is a tough one, but if you're deciding between two jobs in the two cities, it's a question that simply must be answered. You do the best you can, and yes, it is subjective, but you assign the best, most honest value you can on all of the intangibles and then you make an informed decision.
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Old 03-01-06, 10:55 AM
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If you increase taxes - you're a liberal.
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