
Tax hike on California millionaires would create 54% tax rate - onetimemanytime
https://www.cnbc.com/2020/07/30/tax-hike-on-california-millionaires-would-create-54percent-tax-rate.html
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pj_mukh
Note: The combined MARGINAL tax rate has been approximately 50% for a while
now (over a decade?)

The real headline is "California considers hiking tax rates by 3% for people
earning over $2M in income".

Maybe worth editing the description.

~~~
toast0
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.

~~~
r00fus
2017 federal tax changes - meaning Trump's tax bill right?

~~~
iaw
Yes, it was the Tax Cuts and Jobs Act of 2017 signed by President Trump.

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learc83
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."

So basically 3.5% tax on income above $5 million.

~~~
satya71
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.

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DeonPenny
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.

~~~
r00fus
Who would move to Florida during coronavirus?

~~~
nickff
There has been significant migration from New York to Florida for many years
now (at least partly driven by tax considerations); I would expect that not
many people are moving anywhere these days.

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x87678r
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.

~~~
umvi
> 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.

~~~
xondono
You can go to college in most countries in Europe even if you are a 40yo High
school dropout for little money compared with US prices (2500€/year).

The real difference is that in general you get what you pay for, and most
college education is just licensing.

~~~
umvi
> You can go to college in most countries in Europe even if you are a 40yo
> High school dropout for little money compared with US prices (2500€/year).

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.

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rsync
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.

~~~
bwb
Totally agree. I think a lot of the issues are on the federal side, too much
military spending, etc.

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jeffbee
A person with an income of a million dollars is a lot richer than a mere
millionaire.

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davidw
If California really wanted to do something sensible with taxes, revisiting
Proposition 13 would be a great place to start.

~~~
bradlys
Businesses have too strong of a lobby. Same with the landlords.

Beyond that, since it was voter passed, it has to be voter repealed. :( I
don’t think it’ll happen.

~~~
twblalock
> Businesses have too strong of a lobby. Same with the landlords.

Pretty much every homeowner in the state would vote against it too.

~~~
bradlys
You could easily add in a widowed grandma on social security clause in a
replacement piece of legislation - where it only applies to a single property
per family/household/whatever-definition.

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.

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thomasahle
As someone in the process of moving to California, this actually makes me more
happy to go there.

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 ️

~~~
gms
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).

~~~
drewnick
I agree with this assessment. We moved from FL (0% income tax, 1.5% property
tax) to CA (9% for us income tax, 1.05% property tax) and the quality of the
infrastructure is at best on par. Which was surprising. Our SALT taxes went up
5x and the services are similar quality.

~~~
gms
It's rather unfortunate that tax increase as a solution is such a common
fallacy. It's rather like immediately recommending a salary increase every
time you encounter a failing employee.

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eloff
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.

~~~
cellis
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.

~~~
shakezula
God that would be awful huh, having healthcare and decent public
transportation systems

~~~
twblalock
That isn't what would happen. Lack of funding is not the reason we don't have
those things now.

~~~
shakezula
I dunno. Seems like every time a public transportation system proposal pops up
in my city, money is the number one thing they cite when they say “it’s just
not feasible.” :shrug:

~~~
twblalock
That's because it costs a lot to build, because voters have made it difficult
by passing strict zoning laws, because they don't want people to be allowed to
build.

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.

~~~
shakezula
Right, we should never strive for beneficial public things because they're
hard and people complain. Yes, this makes sense.

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zentiggr
I've thought for a while about a progressive tax rate of N * log(asset value).
Not income tax.

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.

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epicureanideal
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.

I don't expect they'll spend the money carefully.

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jadbox
Maybe this is the real reason why Joe Rogan decided to leave California?
[https://www.click2houston.com/entertainment/2020/07/28/joe-r...](https://www.click2houston.com/entertainment/2020/07/28/joe-
rogan-says-hes-leaving-california-for-a-little-bit-more-freedom-in-texas/)

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Trias11
Vote with your feet.

~~~
ipnon
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.

~~~
prokes
“Democracy is two wolves and a lamb voting on what they are going to have for
lunch."

― Benjamin Franklin

~~~
Trias11
Right.

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.

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ponker
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.

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annoyingnoob
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.

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marcrosoft
A lot of tea was thrown into a harbor for much less. History is repeating
itself.

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mikestew
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.

~~~
Cshelton
Texas: Can confirm, many people have left CA because of high housing cost and
tax rate.

~~~
jeffbee
The high tax rate has the opposite effect that most people seem to assume. It
attracts and concentrates high-earning people, because they're the only ones
who can afford it. If you look at migration stats the category of California
residents that grows is the top income quintile.

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iaw
That's a 4% increase from the current top tax rate.

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Shivetya
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.

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justinzollars
How does this change things in California?

~~~
onetimemanytime
at some point people start looking for a different state. Everyone has a
breaking point

~~~
C1sc0cat
It's only a 1% increase in state taxes FFS for some one earning $1 million
which if I where I that situation would think is fair.

In the uk you'd be on 60%

~~~
moultano
In the UK you'd get free quality healthcare, abundant public transit, and
streets without poop.

~~~
chundicus
Yep. Higher taxes + minuscule military spending (compared to U.S.) + citizens
who probably believe more in governance and social welfare than your average
American.

~~~
leetcrew
US tax revenue per capita is nearly double that of the UK, more than enough to
offset the difference in military budget. popular opinion is the only
meaningful difference that you listed.

[https://www.instituteforgovernment.org.uk/charts/tax-
revenue...](https://www.instituteforgovernment.org.uk/charts/tax-revenue-
capita-england-scotland-wales-and-northern-ireland-199900-201516)

[https://www.usgovernmentrevenue.com/breakdown_2017USdt_21ds1...](https://www.usgovernmentrevenue.com/breakdown_2017USdt_21ds1n)

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pmoriarty
The US once had an income tax of over 90%

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kyleee
Was it paid in practice?

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tsuru
Does CA have split between capital gains and other income? Is it taxed at a
lower rate? If so the rich will continue laughing all the way to the bank.

~~~
nullc
No. For CA tax purposes capital gains are just income.

