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Beware the Mickelson Effect « Back to Story
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Soquel - with the rich producers fleeing, you will be targeted next. Fait accompli
Quelle shock! Many people smart or talented enough to make oodles and boodles of money are also smart enough to make economically sensible choices to minimize their tax burden! Who could have guessed? Only the idiots in the state and national legislatures who refuse to accept the hard evidence supporting the validity of the Laffer curve.
Soquel Creek, when I asked a lawyer how Congress could make an income tax retroactive, he explained that the prohibition on ex post facto law applies only to criminal law, not tax law. The Constitution prohibits ex post facto law without that distinction, but that's what he said.
How does the state of California get away with this highway robbery??? why do the producers in California put up with this??? I read Steve Greenhut's book about the public sector unions in ca, California's government is not one in a republic but one in a communist country. (i rather do business with a communist at least I know I am being extorted)
UPDATE: Mickelson's California NET income tax rate going up 83.6% in 2013!
Here's the fact that EVERYONE (including me) initially undervalued concerning Mickelson and CA state income taxes. Starting in 2013, Mickelson's NET state income tax has jumped 83.6%! And yes, this huge increase hits every Californian making more than $2 million income.
Here's why. Until 2013, state income taxes were deductible for federal income tax purposes. Starting in 2013, for the really rich, this deductibility largely goes away (as does deducting property taxes and many other deductions). For people with over $2 million of income, they lose 80% of such deductions.
With Proposition 30 passed in November, CA has raised its income tax on the wealthy by 29%. The combined tax increase is breathtaking. Do the math, and you find that in 2011 the net CA income tax for Mickelson was 6.7% In 2013 his net CA income tax is 12.3% -- an increase of 83.6%.
Some would respond that Mickelson has been subject to AMT (the Alternative Minimum Tax) and thus could not deduct his state income tax in years past. But almost surely he has NOT been subject to AMT.
When you make that much income, and have relatively few deductions (even when deductions were allowed prior to 2013), you seldom if ever trigger AMT. Mickelson earns income with RELATIVELY few deductions, tax credits, etc. so he's been paying the full rate for many years. It's only the returns where special income (some municipal bond income, for instance) or massive deductions are used that AMT is triggered -- ironically mostly for incomes below $1,000,000.
This massive increase through the loss of deductibility was not brought up during the Prop 30 campaign because at the time state income taxes were still fully deductible for federal income tax purposes. Only after the measure passed in November did the geniuses in Congress change the rules on this.
The big taxers love to point to a bogus study by the Stanford Center on Poverty and Inequality (the name says it all regarding their objectivity) "think tank" which concluded that the California 1% millionaire's tax increase in 2005 had little or no effect on millionaire's leaving. While the study has since been largely discredited, the magnitude of that 2005 increase vs. the 2013 CA increase is worth considering.
In 2005, the maximum CA income tax went up from 9.3% to 10.3% for those with over a million dollar income. At the time, the CA income tax was fully deductible. With a 35% maximum federal tax bracket, that meant that the increase cost the rich a net 0.65%.
With the changes I've discussed, the 2013 NET CA income tax increase is 5.6% -- 8.6 TIMES HIGHER than the 2005 increase. Only a fool would think that such a massive increase would still not motivate many of the wealthy to depart the "Golden State."
Parenthetically might I add that California abounds with such fools.
Here's further anectodal eveidence that the rich in ultra-high tax states (in this case, NYC which is about as high as CA) are leaving to tax-free states -- in this case, Florida. What's interesting to me is that this migration has picked up WITHOUT a NY state tax increase -- just a change in the deductibility of state taxes coupled with higher federal taxes.
Wake up, California!
Bob, the FULL 13.3% doesn't kick in until $1 million. But there are additional tax bracket increases on the way to $1 million -- that's what you are referencing.
Yep. Proposition 30 was and is poor public policy and horrible tax policy. Any short-term gains (the law made the rates retroactive to Jan. 1, 2012 in clear violation of ex post facto), will be erased as those affected by the increases adjust their behavior, the business, and their residency.
I don't make enough money to be much affected by Proposition 30 exceed for the negligible sales tax hike. However, I'm smart enough to realize the coming damage from having the nation's highest state sales tax and the nation's 1st, 2nd, 3rd, and 5th highest marginal state income tax rates.
California Proposition 30: Governor Jerry Brown's Big-Government Tax Hike
Thank You Proposition 30 Supporters!
The Tax Foundation listed the ten states with the highest state taxes as well as the ten lowest in 2010. The main difference between the two lists was how much of their taxes were collected from out of state. This is possible mostly because oil-producing states like Texas, Louisiana and Alaska collect extraction taxes. California could markedly reduce the tax burden on its own residents if it would produce more oil and gas. Unfortunately, that sounds politically impossible.
I love Obama and the democrats they say that they do not want to balance the budget on the backs of the poor and middle class
But how does Jerry Brown balance his budget, on the back of the middle class (by increasing state taxes, prop 30) and on the backs of the poor (by cutting welfare spending) of course all of us are affected by the increased sales tax.
I thought that Prop. 30 provided that the 13.3 percent income tax rate applied to all married taxpayers who had taxable income exceeding $250,000, rather than the $1,000,000 specified in this article. The threshold for single taxpayers was $200,000.
quoth Walter Wriston -
Money goes where it is wanted, and stays where it is well treated, and that's all she wrote.
Stay tuned, Governor Moonbeam.
I left California as a native for Texas in 2006 after spending 30 of my then 48 years there. Miss the weather and my friends, but one of the best moves I ever made.