“Come back, Taxpayers!”

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

I couldn’t help but think of the well-known ending to the classic movie western, Shane, when I heard New York Governor Andrew Cuomo plead for rich New Yorkers to return to the Big Apple.

Brandon De Wilde plays the young boy who idolizes Alan Ladd’s Shane. As the wounded gunfighter rides away for good, De Wilde plaintively calls out, “Shane! Come back, Shane.” Cuomo, concerned that the rich New Yorkers, who cover 50% of the New York City’s income tax, during this economic crisis will declare their official residences to be their vacation homes or homes in other states, promised if they’d come back, “‘We’ll go to dinner! I’ll buy you a drink! Come over, I’ll cook!’” Meanwhile, New York City officials are not helping the governor’s sale pitch by talking about raising the top end income tax even higher. 

Could a similar scenario play out in California?

Legislators are considering AB 1253, which will increase income taxes on millionaires from 1 percent to 3.5 percent on a tiered basis. California already boasts—is that the appropriate word—the highest marginal income tax rate in the country. This proposal will enhance California’s reputation as being overtaxed.

California is too reliant on its top income taxpayers, as is. The top 1% of California’s income taxpayers pay 40% of all the income taxes collected in the state. This becomes problematic during economic downturns because the rich’s income is greatly affected especially by a drop in capital gains. This has led to a rollercoaster effect on California’s budget–way up in good economic times, plunging down in bad. Relying even more on the top end taxpayers could mean even greater future budget collapses than California has experienced in the past.

From a political standpoint, the income tax increase on the wealthy is probably the most agreeable to the public. Pushing the plan are headlines that suggest the rich are gaining revenue even during the pandemic. Other tax proposals are circulating from a head tax on big employers that would certainly cost jobs, to a tax on services that would affect most taxpayers depending on the services they use, to the property tax on commercial property already on the ballot that would cripple small businesses, job creation and increase costs including on foods from the farms that has brought opposition from small business and farm associations.

Still, tax increases of any kind during a financial shutdown could dampen an economic rebound. By a two-to-one margin, voters polled by the Public Policy Institute of California opposed the idea of raising taxes to balance the state budget.

If the bill becomes law, how close will that bring the top 1-percenters to a tipping point when they pack up and leave?

There were certainly signs that some taxpayers left to low income tax states after the Proposition 30 income tax increase of 2012. Incline Village, Nevada across the California border, gained a number of California residents.

But Proposition 30 was a temporary tax, extended to the year 2030 by Proposition 55. However, AB 1253 would establish the new income tax increase permanently. This new state tax combined with the federal income tax would bring many of the targeted taxpayers paying more than 50% of their incomes in income taxes.

Might this tax increase cause some taxpayers to reach that ill-defined tipping point and join the many middle-class Californians who have already abandoned the Golden State?

Will we have to change the state motto from “Eureka” to “Please come back, taxpayers?”

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