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Michael Hiltzik: There's still no evidence that taxes are driving residents out of California

Michael Hiltzik, Los Angeles Times on

Published in Business News

"Migration has been a problem for a number of years," Dadayan told me. "SALT cap or not, New York has to be concerned about losing people." Internal Revenue Service statistics show that New York lost more than 76,000 taxpayers from 2017 to 2018, nearly 1% of its taxpayers and the largest outflow among high-population states.

But as Dadayan observes, attributing that migration to concerns about high taxes in general or the SALT cap specifically is another matter. The top destination for fleeing New Yorkers in recent years has been California, which has a higher top income tax rate. "Migration is not necessarily determined by taxes," she says.

The SALT cap raised hackles in high-tax states. New York Gov. Andrew Cuomo pronounced it "an economic civil war that helps red states at the expense of blue states."

New York and California, among other states, tried to enact measures allowing taxpayers to circumvent the cap, but they were scrapped after the Internal Revenue Service ruled them out of order. In any event, tax revenues in California outpaced expectations in 2018-19, due largely to the state's powerful economic growth.

It's proper to keep a weather eye out for indications that taxes are causing disaffection among high-income taxpayers in California, chiefly because the state's tax structure is highly dependent on the top brackets.

As the nonprofit news organization Calmatters reported in 2018, half of the state's income tax revenues come from taxpayers earning $500,000 or more, and nearly 40% from those with incomes of more than $1 million. Those incomes tend to be composed more of capital gains than the average taxpayers'; they're more closely linked to economic cycles -- meaning that the next economic downturn could blow a hole in the state's tax collections.

 

Evidence linking tax rates to the prospects for economic growth is sparse. As my colleague Margot Roosevelt reported last month, California's job growth has outpaced the nation's over the past year. In general, California's economic growth has outpaced that of quintessentially low-tax states such as Florida and Texas since 2011, a period in which California raised taxes on the rich. Texas was the top destination of California migrants in 2017, according to the Census Bureau.

Pinpointing the relationship between the SALT cap and interstate migration is difficult for several reasons. One is that it's too early to tell. The Internal Revenue Service has released taxpayer data only through the 2017 tax year; statistics for 2018 tax payments won't be available until December.

The IRS bases its figures for interstate migration on the mailing addresses of tax forms; its latest figures are based on tax forms filed in 2018, but they apply to taxes paid in 2017 -- before the tax cuts went into effect.

Several studies purporting to show the impact of the tax act used partial-year data produced by the Census Bureau, which isn't considered to be as accurate as IRS figures. Since the tax act only went into effect in 2018 and people ponder at length a major life change such as relocation, Dadayan says, there's simply too short a time frame and too sketchy a data set to determine any impact.

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