Editorial: Will Prop. 30 chase out more millionaires?

2012-11-02 15:55:01

If California millionaires have their taxes raised Tuesday, will they just grin and bear it? That's the suggestion from much of the media, including the Los Angeles Times and CNBC, in light of a new study, conducted by sociologists Charles Varner and Cristobal Young, both with the Stanford University Center on Poverty and Inequality.

The study indicates that millionaires are unlikely to move away, even when more-heavily taxed. It relies predominately on data on the aftermath of Proposition 63, a 2004 California ballot measure that imposed an additional 1 percent tax on incomes of at least $1 million, with the money earmarked for mental health services.

The researchers' conclusion is that taxes are not a driver of millionaire migration, and that divorce is more likely to motivate top-earners out of state.

Ultimately, Mr. Varner and Mr. Young suggest that a millionaire exodus is unlikely to result if Proposition 30, which raises the state income tax on individuals making at least $250,000, passes Tuesday. Roughly 120 millionaires are expected to leave per year in the wake of Prop. 30's passage, according to the study.

We find problems both with the premise of the study and way it was conducted.

The authors and media reports have overlooked instances in other states, including Maryland and New Jersey, where higher taxes sent higher-income residents packing.

Doubts also have been raised about the study's methodology.

"In-migration of millionaires from other states offsets the number of California millionaire out-migrations in most years," wrote Wayne Lusvardi, a reporter and commentator with the news website Cal Watchdog. "The larger problem is that the number of millionaires in California has declined by 61,410 since 2002. If this trend continues to 2019, when Prop. 30 expires, any tax increase on millionaires would be on 71,645 fewer millionaires than in 2012."

The Mental Health Tax during the real estate boom is not a good indicator for possible tax flight during a prolonged economic downturn, Mr. Lusvardi contends. "To conduct a valid scientific study about millionaire tax flight, a comparison needs to be made between millionaires who left the state and those that did not. Instead, the Stanford study made a comparison of a so-called "Control Group" of those in the $500,000-to-$1 million income bracket with a "Treatment Group" in the $1,000,001-to-$1 billion income bracket. This is obviously not a valid apples-to-apples comparison."

Even if Prop. 30, which also raises the state sales tax by a quarter-cent, doesn't spark a full-fledged flight of wealthy Californians, that doesn't mean it should be passed.

© Copyright 2010 Freedom Communications. All Rights Reserved.
Privacy Policy | User Agreement | Site Map