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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

Moreover, year-by-year data are volatile, often for reasons that are hard to discern. California lost 59,542 taxpayer households in 2017-18, according to the IRS, but that was fewer than the 65,014 lost in 2016-17. In 2015-16, the state lost only 25,900, even though that was after the passage of the state's "millionaires' tax" via Proposition 30 in 2012.

Finally, information on interstate moves is extremely noisy because a multitude of factors go into a household's decision to move. Taxes play a role, certainly, but so do job opportunities and lifestyle choices, family needs, health and the prospect of retirement. In recent years, California's reputation as a high-tax state has been trumped by factors that may include its alluring weather, diversity and history of business creation.

Raw data can also be misleading, because big states generate big numbers on migration. Dadayan observes that while New York's volume of net out-migration was the largest in the country, "the state with the largest outmigration rate as a share of total taxpayers was Alaska," which has no personal income tax or general sales tax. Alaska lost more than 4,000 taxpayers in 2017-18, but they amounted to 1.47% of its taxpayers.

Meanwhile, two of the top five states in in-migration percentages have relatively high top income tax rates -- Idaho (6.925%) and South Carolina (7%). California's top rate, applying to income over $1 million, is 13.3%.

A good example of how things aren't so simple came from Chipotle Mexican Grill, the fast-food company that recruited Brian Niccol from Irvine-based Taco Bell to be its new CEO in 2018.

Among the terms of Niccol's deal was that the company would move its headquarters from Denver to Newport Beach, where he was living, even though California has higher property taxes than Colorado and nearly twice the per capita income tax burden.

The disparity is even greater for multimillion-dollar earners like Niccol. Colorado's personal income tax is a flat 4.63% -- in other words, for every million dollars Niccol earns after his first million a year, he's paying $133,000 as a California resident but would pay only $46,300 in Colorado.

On the other hand, Niccol's daily commute became even shorter than it was when he had to travel from Newport Beach to Irvine. And he didn't have to relocate his three school-age children. These evidently were more important factors than taxes. (Of course, Niccol's demand created problems for Chipotle's 400 employees in its Denver and New York offices, which were closed.)

 

Among the non-tax rationales for interstate moves, retirement, "family" and jobs tend to rank high, according to an annual survey by United Van Lines. Retirement was cited in last year's survey by nearly 25% of Californians moving to other states, and only 11% of those moving into California. Indeed, the state experienced a net inflow of residents aged 18 to 54, but a net outflow of those 55 and older -- that is, nearing or already in retirement.

But in Arizona, where about twice as many people moved in as those leaving, retirement was the most frequently cited reason for in-migration. The state achieved a rough balance of inbound and outbound migrants for all age groups below 65, for whom the balance tipped decisively in favor of newcomers.

Employment was often cited by departing Arizonans as their impetus for leaving. By contrast, jobs were by far the most-cited reason for people coming in to California, mentioned by nearly 60% of the newcomers.

The SALT cap may well bare its teeth, in time, restraining state and local policymakers from further tax increases and creating a flow of well-heeled economic immigrants. But the signs of it haven't appeared yet.

(c)2020 Los Angeles Times

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