Issue Position: State's taxable income challenges

Issue Position

How much taxable income is leaving the State each year currently?
According to a recent book by Travis H. Brown, "How Money Walks" over the past two decades California residents have left the state in droves and taken their taxable income and income taxes with them. During the period 1995 to 2010 California saw a net decline in its population of over 340,000 people. These emigrants took almost $32.0 billion in adjusted gross income with them. This loss causes California to lose almost $4.0 billion in income taxes each year, assuming most of the losses in residents are high income tax bracket residents who pay the maximum 13% income tax rate on the majority of their taxable income. This is equal to about 4% of the State's revenue in the annual budget. This amount could double in another 10 years if the State does not do something to reverse the movement.

Where and why do they leave?
Most all the movement is to five states because of obvious reasons--low income tax rates or no state income taxes at all. Nevada, Texas and Washington have no state income
taxes and Arizona has only a 4.54% income tax rate and Oregon
has a 9.9% income tax rate but has no sales taxes. In the fifteen years from 1995 to 2010 more than $28.1 billion of taxable
income left California for these five states alone.
Additionally Conlon cites many examples of people who reside
in California slightly less than half their time but declare their
residence in another state. As a result these "half time resident'
citizens pay no income taxes in California but live here for up to
179 days a year. This is worse than them moving out full time
because they still use the roads, highways and other state amenities without any payment except gasoline taxes.

The State must do something to deter both the full-time and part-time residents moving from the State.

How would Conlon proposed slowing down or eliminating the outward flow of taxable income from California?
The most effective way to stop the outward flow of taxable income and state income tax revenue would be to eliminate the state income taxes completely but that would cause too much of a loss of income to the State. But a reduction of the income tax rate to under a 10% rate or less would be a good first step. This would get closer to the Oregon (9.9% rate) and Arizona (4.54%) but still be a long way away from Nevada, Texas and Washington, which have no state income taxes. Just reducing California's high income tax rate will slow down the outward migration and the loss of state income tax receipts.

Conlon will draft a pro-growth income and capital gains tax legislation to reduce the state rates to fewer than 10% and offset it with reduction in discretionary spending in the State Budget and using the small surplus that is now being generated by the State. This proposed legislation would be sponsored by one of the Republican members in the Assembly and would require the Legislation Council's Office to calculate the exact loss of tax revenue annually and how much savings could be realized by cuts in discretionary spending and use of the current surplus being generated currently.

Source