Tax hike on California millionaires would create 54% tax rate
cnbc.com
cnbc.com
The real headline is "California considers hiking tax rates by 3% for people earning over $2M in income".
Maybe worth editing the description.
37% federal
13.3% state
3.8% Net Investment Income Tax
54.1% total, before this new tax.
Are these large tax rates unusual in other states?
From the article:
"California’s top marginal tax rate is 13.3%. The new proposal would add three new surcharges on seven-figure earners. It would add a 1% surcharge to gross income of more than $1 million, 3% on income over $2 million and 3.5% on income above $5 million."
So basically 3.5% tax on income above $5 million.
NYC is having a bloodbath with their finances with so many of the wealthy leaving to florida and surround states.
With tech letting people work from where ever I'd be cautious of giving the tax base paying for most things another reason to leave when you need money the most.
I doubt the US as a monolith could pull those things off, the bigger the organization the worse it usually is at execution.
the F-35 program
Firstly, college is "free" but at the trade off of not everyone being able to go. Instead the government decides who gets to go. In USA anyone can go to college. It's not uncommon for people in their 30s and 40s in USA deciding to go to college. In Europe you have to perform well enough on exams very early in your life if you want free college, otherwise no college for you.
Secondly, I would argue Europe can spend so much on social services because the US buys so many aircraft carriers (and jets and bombs, etc). Post WW2, Europe's military is very weak and can't really project force at all (just look at how well Europe responded to muslim genocide happening next door 20 years ago). Without the US military presence in Europe, Russia would have annexed a bunch of eastern European states by now.
USA isn't perfect, but USA has unique problems that are hard to solve.
The real difference is that in general you get what you pay for, and most college education is just licensing.
US has cheap prices too (see: community colleges). Doesn't have the prestige factor of ultra expensive universities, but great if you are looking for education.
It is hard to imagine a European lifestyle as we know it today without the advantage of the US military being a deterrent to Russia/China and the latest wannabe dictator.
Please note, I am not blaming the Europeans here, just trying to be realistic and look at a bigger picture.
I thought your high taxes pay for education and healthcare? How is that free?
Which is to say, I can't find any anchoring, or a priori justification for, say, a 28% rate over a 32% rate, etc.
That is, until we cross 50%.
I feel that there are fundamental issue of fairness and proportionality that are incompatible with taking, via tax, more than half of any particular income - even marginal income.
Two immediate reactions I have, related to these concepts of fairness and proportionality are:
1. What does it say about the fundamental relationship of the state to the individual if we are crossing the halfway point in a taking such as this ?
2. What does it say about the economic and budgetary functions of our government (their relative profligacy) if they can't make things work at 35 or 40 or 45% taxation rates ?
Taxation is not my issue. I prefer to live in (relatively) high tax jurisdictions with robust government services and high quality infrastructure, etc., and I would like to help pay for that. There is, however, something about the halfway point that disturbs me.
Beyond that, since it was voter passed, it has to be voter repealed. :( I don’t think it’ll happen.
Pretty much every homeowner in the state would vote against it too.
That said - America is full of temporarily embarrassed millionaires... So, even though the masses will never own a second home - they will vote against it because they think it will screw them over later.
Couldn't that happen in the next generation?
https://www.politico.com/interactives/2020/california-novemb...
I guess because I'm assuming the money will help improve things like infrastructure and homelessness problems, which are some of my main worries.
But then I'm also from Europe and would prefer if they increased taxes even more ️
What we need is consolidation and streamlining of expenses, programs and maintenance. This, however, will serve to enable and cover over the poor policies and inefficiencies that are either causing, or at least failing to solve, the many issues we have in California.
I am very sympathetic to the idea, oft raised by critics of capitalism, that economies cannot grow forever. Why, too, would we not have the same critique of government and its services ?
I think a max 3.5% decrease in income is not going to make many people move. The difference in cost of living in any major California city over most other cities in the US is much larger than that, and didn't make people move.
What is true is it will be the last straw for some small amount of people already waffling over this. It's also true that it won't make much of an impact, both in terms of people leaving and in terms of additional revenue.
If the city did find the money, you would then see people opposing transit on the grounds of environmental impact, or noise, or crime, or the "character of the neighborhood". Then the lawsuits would start.
Use this simulator : https://entreprise.pole-emploi.fr/cout-salarie/ and you'll see that for a 100 kEuro/year employee, what the employee sees is 55 kEuro/year (and that's before income tax). My point is that most taxation in France is not income tax, so even if a marginal rate of 45% exists, that's not where the French are most taxed (although the French would argue that "cotisation sociales" are not taxes, IMHO they very much are). Income tax is not even the number 1 tax for the French state (that would be VAT, see https://www.performance-publique.budget.gouv.fr/budget-compt...).
Not saying this is a bad thing (I wouldn't mind a top marginal rate of 90 % as has existed in the US for most of the 20th century... most people aren't subject to it), and in fact I think the French get a lot (although not enough, the state budget could be better managed) for all their taxes.
- Ineffective spending
- Lower taxes on wealth (i.e. non-income)
- Higher taxes on consumption
- Higher taxes in Europe on employers (i.e. non-personal income)
- Higher taxes on capital income
Do people have good resources to understand the relative source of discrepancy?
It is, indeed -- a result of the very policy-making I'm referring to. I'll enthusiastically leave that, the ever-increasing homeless population, the high taxes, and all the rest behind when I leave.
It's not a 3.5% decrease in income. It's a 3.5% decrease in income over $5,000,000. The 3.5% rate does not apply to the first five million dollars, only the money after the first five million.
I think this point is under-appreciated. As the top federal tax rate has dropped over the decades, each additional percentage point drop has given less proportional value to top-rate-payers, while costing proportionally more of remaining federal revenue. In that sense, the lower the tax rate already is, the more expensive a tax cut is to the government. The higher the tax rate already is, the more expensive a tax increase is to taxpayers.
This is why tax cuts under Bush and Trump blew up the federal budget - tax rates were already pretty low, so quite deep cuts to revenue were required to deliver any notable benefit to high-rate taxpayers. It’s hard to make rich people much richer by cutting taxes when they are already keeping most of their income. In the case of the Trump tax cut, rates were already so low it required raising taxes on some to cut for others.
On the other hand, you can go back and find times when after-tax income of top rate payers doubled because the top rate dropped from eg. 91% to 77%, which delivered a lot of relative value to those taxpayers while fitting more easily into the federal budget (although as always, it’s probably more complicated as tax bills make changes to deductions when they change rates).
I just want to point out that after the Trump tax cuts went into effect, revenue increased[1].
[1] https://www.thebalance.com/current-u-s-federal-government-ta...
Note that I used nominal GDP growth because the linked article used nominal tax revenue. To adjust for inflation we subtract the inflation rate from both sides and we’d get the same 4.9% fallback in tax growth relative to GDP growth.
Federal tax receipts as a % of GDP has been largely flat since WW2:
Overall your chart shows the ratio has a range of 19.75% to 14.42% in the past 20 years, tracking changes to the tax code and business cycle, exactly in the way you’d expect. That’s a 36% difference between the min and max ie. not flat.
I think lawmakers supporting tax cuts try to claim that tax revenues are not sensitive to tax rates because it would be convenient if true when trying to pass a tax cut. The facts don’t bear it out, however.
I think the roots of this argument are in the theory of the Laffer Curve: https://en.m.wikipedia.org/wiki/Laffer_curve The Laffer Curve was used to argue for tax cuts when the top marginal rate was 70%. People are still trying to make this argument, but I think they missed the part where it’s supposed to be a curve, so the result of cutting taxes from 70% is not the same as cutting them from 35%.
> I think lawmakers supporting tax cuts try to claim that tax revenues are not sensitive to tax rates because it would be convenient if true when trying to pass a tax cut.
The point of the chart going back to WW2 is to show that it's a little more complicated and we can't draw conclusions either way.
And circling back to the original point of contention, spending is not function of GDP, or in theory it shouldn't be. Spending is a function of population. So if federal tax revenue increases even after a tax cut, but deficit increases, then the culprit isn't necessarily the tax cut, the culprit is the spending increase.
> The point of the chart going back to WW2 is to show that it's a little more complicated and we can't draw conclusions either way.
I don’t think this is correct. Yes, the economy is complicated. No, that doesn’t mean when cutting taxes we can ignore the resulting increase in the budget deficit. A claim that cutting taxes won’t increase the deficit constrains you to make other claims according to the GDP = C + G + I + X equation, and we should demand that lawmakers be specific about those claims.
As I pointed out, the chart is not really flat. The line actually goes up and down.
Great point, but it increased again in 2019. In fact, inflation adjusted tax revenue has been increasing (with minor transient dips) throughout history[1]. You'll definitely find one-off variations, but the trend-line for inflation-adjusted Federal tax revenue is up-and-to-the-right.
> No, that doesn’t mean when cutting taxes we can ignore the resulting increase in the budget deficit...As I pointed out, the chart is not really flat. The line actually goes up and down.
It's complicated because the ups and downs don't perfectly correlate with tax policy. You can find moments where a decrease in tax revenue as a % of GDP coincide with a tax cut, but you can also find moments where a decrease in tax revenue as a % of GDP coincides with a tax hike and vice versa.
It's important because if you zoom out and look at Federal tax brackets over time since WW2, the US's inflation adjusted tax brackets went from 22%-92% in the 1950's[2] to 10%-37% in 2020[3], but Federal tax receipts as a % of GDP is flat / moderately increased over that period.
[1] https://www.taxpolicycenter.org/statistics/federal-receipt-a...
[2] https://taxfoundation.org/us-federal-individual-income-tax-r...
1) increased tax compliance
2) more tax deductions
Overall, you’d need to use a more comprehensive “area under the curve” analysis of every tax to predict the impact of tax policy on total tax revenue, and it would be surprising if it could be predicted based only on the top marginal rate.
A major source of short-term noise is the business cycle, where capital gains and corporate profits fluctuate much faster than GDP, and some automatic stabilizers decrease revenue.
> A major source of short-term noise is the business cycle, where capital gains and corporate profits fluctuate much faster than GDP, and some automatic stabilizers decrease revenue.
Yes, which is why it's tough to suss anything out from the minor variations between consecutive years, and it makes a little more sense to look at a longer time horizon.
Now, with working remotely becoming more normal, a lot of people who wanted to leave may now have the opportunity to do so.
On evidence for this see the Guardian article titled:
:If you tax the rich, they won't leave: US data contradicts millionaires' threats:
https://www.theguardian.com/inequality/2017/nov/20/if-you-ta...
So if N = 1, entities with $10,000 in assets pays 4% taxes. $1M pays 6%, $1B 9%. Then let N be the point of adjustment.
I say entities because I mean every person and corporate entity. Same rate, across the board for everyone and everything.
If companies want to pay less taxes, then everyone with less money than they do benefits as well.
Never happen, but hey, it's a thought.
I think a tax to help with the pandemic makes sense. But then again, it seems the pandemic should've been over long ago if the government had done the right things. The virus only lasts 3 weeks. Lock everyone up for 4 weeks and we would've been back to work 3-4 months ago.
I don't expect they'll spend the money carefully.
In reality, some people will probably leave, and the rest will likely avoid the increase by receiving the income via lower-rate methods. It seems likely that CA is past the peak of the Laffer curve, and will lose tax revenue.[2]
[1] https://en.wikipedia.org/wiki/The_Myth_of_the_Rational_Voter
― Benjamin Franklin
Modern politician who think that they can tax the hell out of the rich and rich won't do anything about it - do not deserve to be listed in a ballot.
Today's wealth is very fluid and today's zero-tax jurisdictions are fighting for foreigners dollars.
Catch me if you can.
How many of those that would experience this new tax step over homeless people everyday? That is the real issue here.
What people should focus on is the percentage of how much of the taxes these people pay. That should give you an idea of how lopsided taxation has become. The top 1% in California earn 23% of the wages and pay 40% of the taxes. This does not include real estate taxes which are some of the highest in the country.
I know some say, they should. However understand when it gets lopsided it puts budgets at risk if the sources of those incomes take a dramatic shift or worse leave. So if the market tanks a lot of that income can dry up very fast. If the jobs economy moves towards remote working then businesses may not become as attached to swanky offices in expensive states moving two more sources out and further imperiling taxes.
People don't truly understand how much their government costs them. California budget is over two hundred billion dollars. the majority is from payroll taxes followed by sales taxes; about half of what income taxes were; then fees and licenses, and then property taxes. There are some other sources in there but lets say 60:40:6:4 in percentages.
California allocated nearly six billion towards issues related to COVID19 initially, not sure how much it has changed.
A tax impacting the top 0.5% of earners would maybe cause someone to move a corporate HQ out-of-state.
That said, based on how SF's Prop C (2018) went, billionaires disagree on whether or not paying more taxes is fair.
In the uk you'd be on 60%
It's very easy, but not very helpful, to theorize about what you'd do given taxation policy you don't actually have to deal with.
https://www.instituteforgovernment.org.uk/charts/tax-revenue...
https://www.usgovernmentrevenue.com/breakdown_2017USdt_21ds1...
Pensions are also better and receive relief at your tax rate
Universal healthcare would be great if it brought down the ridiculous costs for basic health services and it helped the growing number of homeless and impoverished escape the cycle. The people who already pay will probably never pay less but it's so frustrating to see bills for thousands on simple things like an x-ray?
My partner recently dislocated her shoulder and we were billed $1,500 to get an x-ray. Nothing crazy just tripped and hit the shoulder the wrong way. We went to immediate care center, after waiting over an hour, the doctor tells us they don't have an x-ray tech on the weekend so we need to go to the hospital emergency center. Still got billed for immediate care visit. Then we go to emergency center, wait almost 3 hours, get an x-ray (nothings broken), they pop it back in (no sedative, no equipment, took literally 5 seconds), a month later we get a bill for almost $5,000 for shoulder surgery! We dispute the charge, get it knocked down to $1,500 (for an "emergency room" x-ray that we waited three hours for and only went because the immediate care center owned by the same org didn't have x-ray tech on the weekend) and after insurance our out of pocket charges are basically the same.
I've had good health care experiences in US but often the charges just have no basis in reality.
$10k is no big deal to someone making $2m per year. But that person is already paying ~$240,000 per year in California state income taxes[according to a random tax calculator I just googled]. So they're already voluntarily paying $2.4 million per decade, $24 million over a working career for the privilege of living in the state of California. And yet that isn't enough.
In the immortal words of CCR, "And when you ask 'em, 'How much should we give?' Ooh, they only answer 'More, more, more!'"
You win HN today.
If a bunch of people with 10-100x your income kept moving into your city, driving property prices into the stratosphere, you'd be pissed too. It doesn't stop with houses either. All of the middle class stores start getting replaced with higher cost ones that cater to the ultra-wealthy, leaving you to drive further out for good deals.
Resident who don't want to be pushed out have their own breaking point to, and instead of voting with their feet, they vote to evict the invaders.
California isn't the only place where this a problem. All across the world we are seeing pushback against ultra-wealthy taking over cities/neighborhoods and driving out middle class residents.
Turns out, these people have to live somewhere, so now they travel from further out by car, causing a bunch of traffic congestion. They had to move, but the jobs are still in the same place.
and you kick out the 20,000 people in the city, to another state
so 20,000 suburbans move into the city
now you have 20,000 people in the city, and 180,000 people outside
I'm not sure what you've solved. It feels like you're arguing this is a knee-jerk reaction, and a fair reaction, and that this is a solution, but you keep avoiding saying how it actually solves anything regarding overcrowding. Like it solves every problem except the one under discussion.
Today, more housing does not get built, primarily because of strict zoning laws supported by the existing residents, so newcomers end up competing with existing residents for housing.
On the other hand, if new housing was built for the newcomers, they would contribute to the economy of the city and pay taxes, and their presence would be an overall net positive.
Something is really wrong with the way a city is run if an influx of high earners is considered a bad thing.
People feel like they are being forced out of their homes by these people and they are fighting back.
Else how do the realtors get their commissions?
Empty housing is a different issue, and I'm not sure I've heard much of that being a problem in California (mostly heard this argument for Vancouver and NY)
Even if some of those taxpayer chose to leave, demand for housing and goods/services is reduced, but supply stays constant. i.e. prices decrease for the people who choose to stay.
Reducing economic inequality for the people who choose to stay in California. Seems like a win either way.
[1] (1,000,000 * 0.01 + 100,000 * 0.03 = 10,000 + 3,000 = $13,000)
[1] Top 1% of earners are those above $750,000 https://www.investopedia.com/personal-finance/how-much-incom...
Tax, say, 1% for every million in net worth.
This would be cumulative, so $2 million would be taxed at 2%, $50 million would be taxed at 50%, etc...