The presence of Bernie Sanders in television commercials this fall in support of a California ballot initiative on drug pricing demonstrates the ongoing appeal the Vermont senator has for the Golden State’s many liberal voters, despite his ill-fated presidential campaign. It would be hard to imagine two states more different than Vermont and California, but, politically speaking, invoking Sanders’ support for initiatives in America’s most progressive income tax state makes a lot of sense. However, in the wake of California’s successful campaign to extend the country’s highest taxes on the wealthy, new studies are warning that the next recession will have a serious impact on the state’s finances. The recent passage of Proposition 55 over the protests of even the state’s most liberal editorial boards will extend America’s top income-tax rate — which was originally promoted in 2012 as “temporary” — of 13.3 percent on incomes over $1 million through the year 2030. But that doesn’t tell the whole story. The state’s next three top rates — going down to 10.3 percent on Californians making over $263,000 — are the highest in the United States. In 1995, California raised 36 percent of its income-tax revenues from the top 1 percent; in 2014, 48 percent of income-tax revenues came from this same group. But there’s trouble in brewing in Sanders’ tax paradise. As the Los Angeles Timespointed out in an editorial against Prop 55: “A tax structure that depends too heavily on a small group of people, however wealthy they may be, also presents an insidious social and political problem.” One of the worst effects of a tax system that depends on the “1 percent” to raise a significant portion of revenues is volatility. Even before the last major tax increases, the fluctuations in California’s income-tax revenue looked like the Sierra Nevada mountain range. Fifteen to 30 percent rises and dips from year to year have been a regular occurrence since 2000. A state that makes its income dependent on the ultra rich - is dependent on the continued good fortune of the ultra rich. But the ultra rich, by having so much wealth, can weather the brutal ups and downs of volatile income. They can just delay buying a luxury yacht. Those utterly dependent on a tiny share of the 1%'s income for survival, however, won't make it through a bad Wall Street winter. The article goes on to explain the problem and discuss various proposed alternatives, such as property and sales taxes. The deeper problem, of course, is that California spends too much on a vast (and largely retired) public sector, coupled with a staggering large number of state dependents.
Not to mention all those rich people can, when sufficiently provoked, pack up and leave the state, leaving California with an effective top tax rate of 0%.
Indeed. And a lot of athletes are also avoiding California because the state wants to tax the snot out of their earnings even if they don't live there.
