It's already 54% for folks with a 7 figure income deriving their income from short term investments (say, stock options). This is almost always the case in tech.
Note that before the 2017 federal tax changes, California incpome tax was deductable at the federal level without a cap (but subject to AMT), so a 40% marginal federal tax and a 13% marginal state tax did not add up to a 53% marginal income tax like it does now.
It would create a marginal combined income tax rate of 54% when you combine federal and state taxes.
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."
Exactly, MARGINAL tax rate is different from the actual tax rate. It's the tax on the marginal dollar. There are deductions, and the first few hundred thousand are taxed at a lower rate.
I think they should wait until they see their budget this year.
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.
The crazy thing is you get nothing for it. In Europe you pay high taxes but you get free healthcare, free college and the same for everyone in the country. In the US you get 14 aircraft carriers and something else which I'm not sure.
State taxes don't go toward aircraft carriers. Looking at the state's budget, it looks like California spends most of its budget on education, then healthcare and welfare programs, then prisons(‽).
I realize this won’t change your simplistic “Europe good USA bad” worldview but relatively high CA taxes do support good social services and as a CA resident I have benefitted. There is a strong paid family leave program for new parents or those caring for ill family, for instance.
> In Europe you pay high taxes but you get free healthcare, free college and the same for everyone in the country.
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.
I think that the percentage income tax rate is, largely, an arbitrary number.
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.
There a pretty weak reform for 2020 in Proposition 15. It will tax at realistic values (i.e. exempt from Prop 13) certain commercial properties. I'd like to see much stronger reforms so that second homes are realistically taxed etc, but at least it is a start.
California has one of the highest state income taxes AND sales taxes in the country. Combined, they can easily total nearly 20%. Yet, the state is in massive debt and infrastructure projects go no where (https://www.sfchronicle.com/politics/article/Train-to-nowher...)
I live in California. Unfortunately you're going to be disappointed - California has the highest tax rates and the worst infrastructure. The failure to solve these problems isn't due to having too little money (states and countries with a fraction of California's wealth have solved these problems).
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 ?
A lot of comments are saying people will leave. I don't think this is true.
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.
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 moved to California 25 years ago, and for the past 10 have become increasingly motivated to leave; due to not only tax policy, but overall politics. I'm not in the 0.5% they're targeting, but experience teaches me what comes next. The idea that it would be retroactive is very offensive. I'm 95% ready to move as-is; this kind of policy move would push it too 100 immediately.
It's more about a portend of what's to come, not that this tax per se is the final straw. Next year there will be another tax, and another tax. I'm convinced people in California won't be happy with the level of taxation until we're like Sweden or France.
The problem with any temporary tax to pay for current hardships is that it'll never be ended.
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.
What if you vote for your rational self-interest? This tax applies to income greater than $2 million per year. Let's assume everyone whose tax base will increase will vote against, everyone whose tax base will not increase will vote for. A popular ballot cast this way would pass by a wide margin.
Very clever to limit the tax to people making over $1 million — at that level, your pay is based more on who you know than what you know, making it harder for them to “vote with their feet” and leave California.
There is a big gap between those with money and those without in California. We need to have better average pay and close the wage gap, the tax issue then takes care of itself.
How many of those that would experience this new tax step over homeless people everyday? That is the real issue here.
For those saying people will leave, I'll note that I first heard that going on 40 years ago in a Wall Street Journal article that talked about how California's high tax rates were driving people to Nevada (now, why I remember that...?) I'm sure that the WSJ wasn't lying, and some former CA residents did, indeed, move to less taxed states. I've heard the same trope repeatedly in the years since. I'll note that the complaint most folks have with CA these days is the cost of housing, indicating that taxation didn't drive everyone away.
My understanding is that both are true; net interstate migration is away from CA, but CA's population is increasing due to international migration and relatively high fertility among some communities. On average, CA's emigrants are richer than its immigrants.
TL;DR This group pays 40% of the taxes on 23% of the wages and budget risk is that if something happens to those incomes it has an exaggerated effect and is dangerous.
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.
[+] [-] pj_mukh|5 years ago|reply
The real headline is "California considers hiking tax rates by 3% for people earning over $2M in income".
Maybe worth editing the description.
[+] [-] throwaway373438|5 years ago|reply
37% federal
13.3% state
3.8% Net Investment Income Tax
54.1% total, before this new tax.
[+] [-] toast0|5 years ago|reply
[+] [-] WilTimSon|5 years ago|reply
Are these large tax rates unusual in other states?
[+] [-] learc83|5 years ago|reply
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.
[+] [-] satya71|5 years ago|reply
[+] [-] DeonPenny|5 years ago|reply
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.
[+] [-] r00fus|5 years ago|reply
[+] [-] x87678r|5 years ago|reply
[+] [-] chc|5 years ago|reply
[+] [-] hourislate|5 years ago|reply
I thought your high taxes pay for education and healthcare? How is that free?
[+] [-] jollins|5 years ago|reply
[+] [-] umvi|5 years ago|reply
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.
[+] [-] caiobegotti|5 years ago|reply
[+] [-] sdinsn|5 years ago|reply
[+] [-] leeoniya|5 years ago|reply
the F-35 program
[+] [-] DeonPenny|5 years ago|reply
I doubt the US as a monolith could pull those things off, the bigger the organization the worse it usually is at execution.
[+] [-] rsync|5 years ago|reply
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.
[+] [-] bwb|5 years ago|reply
[+] [-] jeffbee|5 years ago|reply
[+] [-] davidw|5 years ago|reply
[+] [-] jeffbee|5 years ago|reply
https://www.politico.com/interactives/2020/california-novemb...
[+] [-] bradlys|5 years ago|reply
Beyond that, since it was voter passed, it has to be voter repealed. :( I don’t think it’ll happen.
[+] [-] thomasahle|5 years ago|reply
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 ️
[+] [-] cowgoesmoo|5 years ago|reply
[+] [-] gms|5 years ago|reply
[+] [-] rsync|5 years ago|reply
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 ?
[+] [-] eloff|5 years ago|reply
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.
[+] [-] coldpie|5 years ago|reply
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.
[+] [-] eplanit|5 years ago|reply
[+] [-] twblalock|5 years ago|reply
Now, with working remotely becoming more normal, a lot of people who wanted to leave may now have the opportunity to do so.
[+] [-] unknown|5 years ago|reply
[deleted]
[+] [-] cellis|5 years ago|reply
[+] [-] pmoriarty|5 years ago|reply
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...
[+] [-] zentiggr|5 years ago|reply
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.
[+] [-] epicureanideal|5 years ago|reply
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.
[+] [-] jadbox|5 years ago|reply
[+] [-] Trias11|5 years ago|reply
[+] [-] ipnon|5 years ago|reply
[+] [-] ponker|5 years ago|reply
[+] [-] annoyingnoob|5 years ago|reply
How many of those that would experience this new tax step over homeless people everyday? That is the real issue here.
[+] [-] marcrosoft|5 years ago|reply
[+] [-] mikestew|5 years ago|reply
[+] [-] nickff|5 years ago|reply
[+] [-] Cshelton|5 years ago|reply
[+] [-] iaw|5 years ago|reply
[+] [-] Shivetya|5 years ago|reply
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.
[+] [-] justinzollars|5 years ago|reply
[+] [-] onetimemanytime|5 years ago|reply