![]() While the federal government may be helped by limits on what American citizens can do to escape federal taxation, state governments tread on much thinner ice when faced with the ability of taxpayers to move their residences and their earnings generation to other states. The economist Arthur Laffer has famously argued that there is a tax rate beyond which a government’s revenue will decline if it raises taxes further, due to the disincentive effects of high taxes. High income taxpayers affected by the 2012 tax increase suddenly began to flee the state at higher rates, especially to zero tax states like Nevada, Texas, and Florida.Įven more importantly for the state budget, those that stayed began declaring considerably less taxable income than they would have otherwise, apparently either scaling back their productive activities or engaging in tax avoidance. ![]() The problem is that high earners do not simply sit there and take it when the state goes after their income. At the same time, it will hammer job creation. While some seem to believe that high earners can provide unlimited resources, the evidence from prior tax hikes suggests that the introduction of these tax rates is not even likely to raise revenue for the state. This plan constitutes a continuation of California’s soak-the-rich approach to raising revenues. Those earning between $2 million and $5 million would pay an additional three percentage points, and those earning over $5 million would pay an additional 3.5 percentage points, bringing their marginal rates to 16.3 percent and 16.8 percent respectively. Income between $1 million and $2 million would receive a one percentage point surcharge, bringing the marginal rate to 14.3 percent. This proposed legislation would add new income tax brackets for high earners on top of the existing ones. ![]() One of the latest ideas is Assembly Bill 1253. The California Legislature is back from its summer recess and has frantically resumed its quest for new revenue sources. ![]()
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