don’t worry Billionaires aren’t fleeing California

from Yusef BaigCalMatters

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It’s hard to muster much sympathy for billionaires Peter Thiel and Google founders Larry Page and Sergey Brin, who all withdrew from other states and left a dust cloud of headlines in their wake, warning that a possible wealth tax would scare off more tech moguls like them, dooming California.

You may have heard this before.

These men represent an exception to the rule of a largely orderly corner of the economy, in stark contrast to a story and advertisement already devours a proposition which didn’t even qualify for the vote. It is much easier for a rich person to threaten to leave than to actually do so, as years of research on millionaire migration have shown.

The fact-free rhetoric of political actors and business leaders in recent weeks also fails to recognize an ugly truth: people like Thiel and the guys at Google are amassing vast fortunes without paying taxes.

Such a good riddance. It’s not like Google is leaving Mountain View.

To be clear, California faces urgent questions about the state’s finances and how we sustainably fund essential services. That was before a wave of federal funding cuts. The state needs new revenue, whether it comes from a tax or some other combination of solutions to stabilize the budget.

An influential union, SEIU–United Healthcare Workers West, is collecting signatures for imposed a 5% tax on government billionaires in the newsletter to help fill Medi-Cal cuts that put millions of Californians at risk of losing their health insurance. Supporters say the one-time fee could generate $100 billion.

It sounds good in theory, but it won’t address California’s deeper problems and could make it much more difficult for the state to more meaningfully reform its top-earner rules. The nonpartisan legislative analysts are forecasting the state budget deficit up to $35 billion a year if nothing changes. Healthcare is just one piece.

Just don’t believe the lie about “the exodus”. It is a sham, a fiction invented decades ago to scare people into voting against their interests.

Fairy tales are cheap for the ultra-rich

Cornell University sociologist Cristobal Young, author of “The Myth of Millionaire Tax Escape: How Place Still Matters to the Rich,” has spent the better part of two decades studying migration patterns when countries tax their wealthiest residents. The argument that rich people will up and move “just doesn’t hold much water,” he told me.

of Young 2012 study with the Stanford Center on Poverty and Inequality tried to find out whether changes to California’s top tax rates caused high-income earners to leave. They examined migration patterns after voters passed a 1 percent tax on millionaires in 2004 to pay for mental health services.

Californians with the highest incomes were actually less likely to leave after its passage.

In a study with the Ministry of Finance in 2016, looking more broadly at the effects of progressive taxes, researchers found that millionaire tax flight did occur, but only at the fringes. According to the study, a 10% increase in the top tax rate, for example, would lead to a 1% drop in the millionaire population.

“These people are just very rooted in the places where they’ve built their careers and have a lot of ties to where they live and work. It’s expensive to let them go,” Young said. “So it’s one thing to say, ‘I’m moving to Texas.’ But many people, when it comes to that move, they don’t want to do it.

In a recent analysis for Forbeseconomist Teresa Ghilarducci wrote that wealthy taxpayers are more likely to fail if the tax is high, constant and easy to avoid. From a public finance theory perspective, the California health workers union may have struck the right balance.

“A recurring tax can change life planning and affect where people live,” Ghilarducci wrote. “A lump sum tax probably doesn’t.”

It would also be a one-time solution when the country is facing long-term problems.

In an era defined by a high cost of living and voters clamoring for relief, California has a golden opportunity to do more meaningfully with its tax system. The The state budget relies heavily on income taxeswhich makes us too dependent on technology companies and their stock market performance. In the pandemic era, this resulted in an intense budget blow, when the 2022 surplus transformed into an ongoing deficit two years later.

There are many options if state policymakers want to address the problem. A lower but longer-lasting tax on billionaires that helps fund other earmarked essential services — not just health care — might be in order. Only a sunset date was needed to avoid the pitfalls described by Ghilarducci.

California no longer has estate or inheritance taxes. California’s estate tax was eliminated in 2005 after Congress ended the federal credit for state death taxes. California could potentially generate about $3.6 billion annually if voters reinstate the property tax, according to the nonpartisan Center on Budget and Policy Priorities. Twelve states and Washington still impose estate taxes.

About 200 billionaires in California are likely also skirting the tax system, meaning there are loopholes lawmakers can close. In 2021 ProPublica obtained a set of IRS files and declassified them how the nation’s richest people manipulate the tax code to amass tens of billions of dollars in wealth each year while giving the government a cut.

Instead of paying income taxes, they keep their wages artificially low and make most of their money through capital gains and dividends from their investments. They then make large charitable donations and use other tax-saving measures on an outrageous scale to pay even less. “Buy, borrow, die” is a popular strategy.

Thiel, for example, used investment gimmicks and tax law changes — that could only be used by the ultra-rich — to turn a Roth IRA account into a $5 billion tax haven. ProPublica found. He won’t have to pay a penny in taxes, assuming he retires next year when he turns 60.

A barrier the size of a governor

Unfortunately, Governor Gavin Newsom may be the biggest obstacle to the necessary conversation about taxes in California. Six years ago, he warned that “wealth tax proposals are failing in California.”

of Newsom panic and strong opposition of the billionaire tax idea has helped expose the nation’s resistance leader as he builds his legacy with an eye on higher office. Despite its rapid ascent in prediction markets for the next presidentapparently fame has not changed the man. Newsom has always fought against taxes and regulations that could irritate the ultra-rich, even if most Californians would benefit.

It is the governor who vetoed the AI ​​safety bill this would require models to test whether they are likely to cause mass death, threaten public infrastructure, or enable large-scale cyberattacks. In his veto message, he worried that the legislation “restricts the very innovation that fuels progress for the public good.”

It is the governor who runs an opposition campaign four years ago, it sunk tax increases for multimillionaires and would have helped fund subsidies for electric vehicles, charging stations and wildfire response. Meanwhile, the 2035 EV mandate he takes credit for remains unfunded.

This is the governor who stepped in when a voter-backed privacy watchdog was developing regulations to make it easier for people to opt out of generative AI tools and require risk assessments. The frightened board complied and released the AI ​​systems.

Three years ago, Newsom thwarted an attempted wealth tax by a lawmaker Alex Lee before it even reached the printers, saying it was “dead on arrival”. And three years before that, the governor aggressively fought the nation’s first wealth tax proposal, introduced by then-Assemblyman Rob Bonta. He died without a single voice.

Unless Capitol lawmakers defy the governor and give voters something serious to consider soon — and better than this wealth tax — the state remains handcuffed to the fate of Silicon Valley.

Fortunately, some billionaires understand. Nvidia CEO Jensen Huang, who is six times richer than Thiel and runs a $4.4 trillion technology company, said he was “absolutely fine” with a wealth tax. California is the only place in the world where this level of ingenuity and talent coexist.

“We chose to live in Silicon Valley,” Huang told Bloomberg recently. “Whatever taxes they want to implement, so be it.”

We don’t have to worry about Thiel or the Google guys leaving California— that’s everyone else. The people who actually pay income taxes and work for the companies are the ones who support the government budget.

This is the exodus California needs to prevent.

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.