While in the midst of a presidential campaign season there is a great deal of talk about taxes. In California, we are facing two new tax-related propositions — Proposition 30 and Proposition 38. Amid the discussions, an interesting analysis of IRS data has taken a look at millionaires and whether or not they are voting with their feet or their pocketbooks or both.
It turns out that even though California is a high-tax state in terms of state income taxes and capital gains taxes, that those with extreme wealth are staying put in the Golden State.
The study looked at IRS data that has been released to the public and found no correlation between the income tax rate on millionaires and the states in which they choose to live. For example, Illinois and Ohio have the same state income tax rates and populations and yet Illinois has 233 millionaires per 100,000 taxpayers compared to Ohio’s 107. Even more interesting, Massachusetts has more than twice as many millionaires per capita compared to its neighbor, New Hampshire, which is free of state income tax.
Despite the high taxes in California, we have 252 millionaires per 100,000 taxpayers compared to Florida’s 202 and Texas’ 217, which have no state income taxes and are also warm weather states.
One of the ways to mitigate a tax liability in many states is to earn money through capital gains rather than as taxable income. In many states capital gains are taxed at a maximum rate of 15 percent. In California however, our capital gains are taxed at the same rate as regular income or wages.
Where one lives depends on many factors including lifestyle, access to amenities or family, the weather and for some, taxes. According to the study however, our state’s millionaires are not fleeing the Golden State due to state taxes.
Source: Mercury News, “Superrich stay put in high-tax states like California,” Mike Rosenberg, Oct. 1, 2012