Inside the Minds of the Very Rich

Getty Images

The biggest irony of the current California political season?

Here's one possible answer: The fact that those folks who are most aggrieved about the concentration of wealth are trying to make the state even more dependent on such wealth.

That would be one effect of the millionaires' tax, the ballot initiative backed by the California Federation of Teachers, the Courage Campaign and other progressives.

It would increase income taxes for those who make a million dollars a year and up.

By doing that, California would get even more of its revenues from the "1 percent" at the top.

There are different views on whether this is as a good or bad thing. For the budget, California's progressive tax structure -- which would get more progressive with this initiative -- creates a challenge because the revenues from rich folks tend to be very volatille.

That's why, even though California's economy was essentialy flat overall between the 2007-08 and the 2008-09 budget years, state revenues fell 18 percent.

The very rich had a bad year, particularly with the investments from which they drive most of their income.

This progressivity has virtues as well. 

To many people, it seems more fair for people with more money to pay more.

Over time, the volatile system tends to produce more revenue -- despite the more severe ups and downs.

In this way, volatility is a feature not a virtue. However, it would be more of a feature if the state had a big, real rainy day fund that saved the money from good years to make up for the shortages in the bad year. (The state has multiple rainy day funds on the books, but the rules governing them are so loose that they have little or no money in them).

Put all these facts together, and any Californian -- no matter how much money you make -- probably should be preoccupied with the question of how very rich people think.

Since we need them, whether we like it or not.

The millionaire's tax then begs the question. Will the rich stay in California and pay additional taxes if it passes? Or will they go elsewhere?

New IRS data, reported at LA Observed, suggests we should worry a little, but not a lot, about this.

Rich people are fairly loyal to California, as you might expect, since California is a wonderful place to live in if you have enough money to afford a fine home or two. California has more people with net worths of $2 million or more than any other state.

That's not merely a function of the state's size. California also has one of the highest percentages of such people in the country.

For those more inclined to worry about departures of the rich, two of our neighboring states provide some reason for concern. 

The same data show that Oregon and Nevada also are welcoming to rich people. Oregon income taxes are slightly higher than California's current taxes for the very rich -- though the Millionaire's Tax would give California the lead in this area. Nevada's taxes are much lower than both.

Would the Millionaire's Tax send California millionaires out of state? Probably not. But we shall see.

Let us know what you think. Comment below, send us your thoughts via Twitter @PropZero or add your comment to our Facebook page.

Contact Us