More budget problems for California and why Nevada has more revenues with no income tax.
In the 1990s, Governor Pete Wilson pushed California’s personal income tax rate above 11 per cent to pay for huge spending increases. The state plunged into its worst economic crisis: “Tax revenues cratered,” Mr. Laffer and Mr. Moore say. “Debt exploded. High-income people fled the state, never to return.” California’s fundamental problem, they asserted, remains now what it was then – the state’s top personal income tax rates remain the highest in the U.S. (except only for New York State), and the exodus of high-income people has never stopped.
California’s net loss of 1.3 million people, from 1997 through 2006, cost the state billions of dollars in lost tax revenue – because many of the people who fled were high-income earners and because California relies disproportionately on revenue from highly progressive personal income tax rates. The richest 10 per cent pay 75 per cent of the state’s personal income tax revenue.
California treats high-income people as cash-dispensing ATM machines, Mr. Laffer and Mr. Moore say. But, California’s loss of its most affluent residents demonstrates “that a state without taxpayers doesn’t collect taxes,” they say.
Californians pay state income tax at a top rate of 10.3 per cent. When they cross the border to Nevada, they pay zero state income tax. Mr. Laffer and Mr. Moore show that high-income families can theoretically move to Nevada, buy new homes and pay for them in a single year from the money they saved by fleeing California.
California’s losses are Nevada’s gains. From 1997 through 2006, California GDP increased 80 per cent; Nevada GDP increased 123 per cent. California personal income increased 74 per cent; Nevada personal income increased 120 per cent. California net domestic in-migration (as a percentage of population) fell 3.5 per cent; Nevada net in-migration grew 20 per cent. All of which helps explain why Las Vegas is the fastest-growing metropolitan region in the United States – and why Arnold Schwarzenegger hasn’t been able to terminate California’s recurring financial crises.
