Taxes on California’s High Earners Leads to Outmigration, Less Taxable Income

In 2012, California increased marginal income tax rates by 3 percentage points for high-income households.

Using data from the California Franchise Tax Board for all taxpayers from 2000-2015, Joshua Rauh and Ryan J. Shyu of Stanford Graduate School of Business found that an additional 0.8% of California residents whose 2012 income would have been in the new top tax bracket outmigrated in 2013, mostly to states with zero income tax. Furthermore, the Stanford researchers found that the top earners in California, whose mean income was $4.15 million in 2011, reported $522,000 less in taxable income in 2012 than similar taxpayers unaffected by the law change. Overall, they calculated that, outward migration and behavioral responses by taxpayers who stayed eroded 45% of tax revenues from the increased tax rate on high-income households.

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