![]() ![]() Rauh says it’s not clear how much of that decline resulted from people actually earning less or from people who made heavier use of tax-avoidance strategies. On average, the in-state filers reported $522,000 less income than the out-of-state filers in 2012 and almost $600,000 less by 2014. The short answer: California’s in-state top earners suddenly found more ways to reduce their taxable incomes. ![]() To figure out how much those taxpayers were modifying their taxable incomes, the researchers took advantage of a peculiarity of California: Even if a person lives out of state, the state taxes income from California sources, which means that many non-residents are still required to file returns with California.īecause of that rule, the researchers were able to compare the returns of residents and non-residents in the very top bracket to see what happened to each group after Prop. The average income of that group was $4.15 million, and they paid about half of California’s income taxes. To measure the income-reduction effects, the researchers focused on taxpayers who had consistently been in the top tax brackets in the years before and after Prop. Those people, with incomes above $1 million, saw their top rate jump from 9.3% to 12.3%. The much bigger erosion, however, was triggered by declines in the taxable state incomes that Californians in the very top bracket were reporting. Not surprisingly, states with no state income tax - notably Nevada and Texas - were among the most popular destinations. The share of people in the very top bracket who annually moved out of state climbed from 1.5% in the years before 2012 to 2.12% in the years afterward. 30 did seem to prompt an increase in departures. Critics of higher state taxes have long argued that many people will respond to a tax increase by moving to a state with lower taxes or no income taxes at all. The first was to see how many additional top earners moved out of California after the tax increase took effect. Rauh, who collaborated with Stanford GSB doctoral candidate Ryan Shyu, essentially measured two separate potential responses to the tax increase. It seems quite likely that California is now on the wrong side of the Laffer curve.” “But that’s cold comfort when you recognize that in 2018 you effectively had a second Prop. ![]() “The good news, for people who don’t believe in the Laffer curve, is that California did take in more money - even if it was only 50 cents on the dollar,” Rauh says. The result, Rauh says, is that California may now be on the “wrong side of the Laffer curve” - a reference to the famous proposition by Arthur Laffer that, at some point, higher tax rates will lead to lower tax revenues. In effect, that amounted to a second tax hike for Californians. What’s more, says Rauh, the erosion has probably increased even more since then, because Congress largely eliminated the federal tax deduction for state and local taxes in the $1.5 trillion tax cut of 2017. Why? Because many of those people escaped the increase by either moving out of state or finding ways to reduce their taxable incomes. Rauh, a professor of finance at Stanford Graduate School of Business and a senior fellow at the Hoover Institution, finds that revenue gains were barely half what they would have been if all the state’s top earners had actually paid the higher rates. California’s budget swung from a $27 million deficit in 2011 to a $21 billion surplus in 2019.īut a new study led by Joshua D. The Proposition 30 tax increase did generate more revenue, though it got huge help from the state’s booming economy. Jerry Brown, California voters approved a ballot initiative that substantially raised state tax rates on top earners - especially those earning more than $1 million a year. In 2012, after a remarkable campaign by Gov. In addition to information about California's income tax brackets, provides a total of 175 California income tax forms, as well as many federal income tax forms.The share of people in the top income bracket who moved out of state climbed from 1.5% to 2.12% annually after California’s tax hike. Other California Individual Income Tax Forms: We will update this page with a new version of the form for 2024 as soon as it is made available by the California government. This form is for income earned in tax year 2022, with tax returns due in April 2023. We last updated California Tax Rate Schedules in February 2023 from the California Franchise Tax Board. ![]()
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