Like the harried traveler who made famous the expression, “Don’t touch my junk”, I have elected my own personal protest, California style. I have decided to OPT-OUT of California to protest my overgrown state government. I am tired of California legislators sticking their hands in my pants to pay for the European style social welfare state they have created. My work, my earnings and my taxes will go elsewhere.
I am one of those evil “high-earners” in California with income over $200,000 per year. It is unimportant to state legislators that we high-earners pay most of California’s taxes. According to the Franchise Tax Board, in 2007 more than 87 percent of California capital gains taxes came from taxpayers with adjusted incomes of more than $200,000. Residents with incomes over $200,000 pay 66 percent of its income taxes even though earn just 39 percent of the state’s income. More important to California’s future, most of us are small businesses, which account for 65 percent of new job growth in the state.
When I moved to California in 1981, California was truly the Golden State. Its budget revenues of $22.1 billion levied just $920 per person from its population of 24 million. It had great freeways, great schools and its inexpensive college/university system was the envy of the planet. By 2009, the budget revenues had grown to $86 billion, or $2,324 per person from each of its 37 million residents. But California has a $25.4 billion deficit, which means the aging “movement” activists who govern this state are spending $114 billion or $3,081 per resident. Spending is up 520% from 1981.
The $86 billion in revenues California collected from capital gains and income taxes is not the only tax that has increased. Despite Prop 13 that capped property taxes at 1%, property taxes expanded from $6.36 billion from 1980-1981 to $43.16 billion in 2006-2007, an increase of 579%. For point of reference the CPI index increased just 133%, from 88 in 1980-1981 to 202.4 in 2006-2007.
The Legislative Analyst’s Office says California will have an additional $6.1 billion shortfall in the current fiscal year reaching $25.4 billion next year. Legislative Analyst Mac Taylor says the state faces deficits of $20 billion each year through 2015.
“Unless plans are put in place to begin tackling the ongoing budget problem, it will continue to be difficult for the state to address fundamental public-sector goals — such as rebuilding aging infrastructure, addressing massive retirement liabilities, maintaining service levels of high-priority government programs and improving the state’s tax system,” the report said.
How did California voters respond to this fiscal irresponsibility in November? They rewarded the Democratic Party with every elected office from Governor to Insurance Commissioner, and returned Barbara Boxer to the US Senate. I guess California voters did not get the Tea Party memo that resulted in a “shellacking” of 64 Democrat Congressional seats in the rest of the nation. The political tsunami that hit even parts of the Eastern seaboard in 2010 totally missed California. Perhaps it ended somewhere in Nevada with the re-election of Harry Reid.
So, in protest to the insensitive indulgent big-spenders that run Sacramento, I say, “Don’t touch my junk!!!” My beautiful California home is now on the market for $2,000,000. My next home will be in a no state income tax state like Texas or Nevada. I will not buy that new Jaguar that I was planning to purchase for $75,000. I will keep my old Cadillac and deprive Sacramento of $6,562 from its 8.75% sales tax. My next purchase for my real estate business will be an office building in Prague in the Czech Republic, a democracy that has lower taxes and fewer regulations. My income will remain either offshore or in a state that does not confiscate like the money grubbers in Sacramento. And, I will not be investing my capital to create any new jobs in California. In the digital age, my staff will be located in states that are a little more business friendly.
Apparently, I am not alone. Migration out of California exceeds the rate of almost every other state. Why are my fellow “high-earners” leaving the Golden State? Maybe it is because California ranks nationally in the bottom two for business friendliness while placing third in state income taxes.
We have Jerry Brown as our Governor again, meaning that he will live his entire life without a real job. The Central Valley, once agricultural wonderland of America, has Depression era unemployment, this as a result of a green-inspired court water shut-off designed to protect an Anchovy sized piece of bait called the Delta Smelt. And, our brilliant voters – including those working class voters most impacted – rejected Prop 23. That means that on January 1, 2011, California must begin to reduce our greenhouse gases by 40%. To achieve this noble goal, we seem certain to make ourselves even more uncompetitive with other countries and other states.
If that was not enough, voters also approved Prop 25 which allows the public union dominated Democrats to pass its budget with a simple majority. They did such a good job ($20 billion shortfalls) when they were forced to obtain a 2/3rds vote for approval. They no longer will need a single Republican vote to pass their budgets.
Margaret Thatcher remarked to Parliament on February 22, 1990, “The trouble with socialism is that you eventually run out of other people’s money.” Such will be the fate of the failed state of California and its free spending legislators, when high-earners like myself vote with their feet, and their wallets, and take their earnings elsewhere.
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Robert J Cristiano PhD is the Real Estate Professional in Residence at Chapman University in Orange, CA and Head of Real Estate for the international investment firm, L88 Investments LLC. He has been a successful real estate developer in Newport Beach California for twenty-nine years.
Photo by ASurroca
Comments
22 responses to “I Opt-out of California”
Mr. Cristiano,
That you have a $2 million home to sell and the means to buy business property overseas suggests that California has been very, very good to you. Congratulations on your success.
I’ll not delve into the question of what it says about your character that your response to the place where you’ve achieved that success, when it falls on hard times, is to flip it the bird and run. We all have different reactions to events — and in any case it’s a free country.
However, regarding your heartfelt plaint that the oppressed $200K earners of the state earn a mere 39 percent of the income but pay 66 percent of the income taxes, I’d point out that no less a capitalist light than Adam Smith himself argued for a progressive income tax, and that the federal income-tax code hits just about that curve as well — which is to say it’s a perfectly normal income-tax split. And the notion that California has a European-style social-welfare state would come as a massive shock to the couple million employed Californians who go without health insurance.
You compare the 579% increase in property tax revenue to the 133% increase in CPI. This comparison makes no sense. The value of the property in the state increases with inflation, but it also increases with population. More people require more houses and more stores. Comparing the actual property tax rates would’ve been more accurate and easier, so I don’t know why you chose such a convoluted and meaningless comparison. You also don’t account for inflation in any of your other comparisons.
Another strange figure you cite is the percentage of capital gains taxes paid by high-earners. If you’re surprised that high-earners have far more capital gains than everyone else, then you need to do a bit of research into the lives of common Californians. It’s just not a meaningful figure to cite. Just put together all of the taxes paid by high-earners and divide by total state revenues.
If you find it difficult to describe the follies of California’s state government without misleading figures, you’re doing something wrong.
The primary reason there is a mass-exodus from California has little to do with taxes and everything to do with the cost of housing. I moved here myself 11 years ago. Even then the door was pretty much shut for people like me. The cost of housing was at nosebleed levels due to the dot-com boom. The crash in the dot-com was immediately followed by the housing boom, which pushed home prices even further. I’m certainly no pauper. My wife and I make well into a 6-figure income. We’ve been saving for years and frankly, the types of jobs we have here pays about 40-50% more than what they would in other states. But even with our good incomes buying a house anywhere near our jobs places us at a significant financial risk. Thus we are actively making plans to leave the state. The decision had nothing to do with taxes and everything to do with the cost of real estate. I can almost guarantee that if you were to ask most of the others leaving their reasons would be the same.
Lastly, while TX might not have an income tax they certainly make up for it in the form of high property taxes. As in as much as 3% of the property’s total is taxed each and every year. A million dollar home will cost you $30,000 a year. The more typical garden variety $250,000 Mcmansion will be more like $7,500. That’s not exactly chicken feed.
As others have noted, the adjusting for inflation and population growth in this article is haphazard. However, even if the adjustment were consistent, it would not account for the growth of the economy.
As it happens, the Bureau of Labor Statistics keeps a handy, web-accessible database here: http://www.bea.gov/regional/gsp/.
According to it, California’s gross state product in 1981 was $3,057,318 (and forgive me, I’m cross-eyed the a.m., but we seem to be shortening by … 5 zeroes). In 2009, it was $14,150,826 (plus five zeroes — $1.4 trillion).
Bottom line: The nominal gross state product is 4.6 times as large as it was in ’81.
And state spending? Using the author’s numbers (though it’s hard to see how the state will, in practice, spent $114 billion this year), total nominal state spending is 5 times what it was in ’81.
In other words, the size of state government, compared to the economy, has grown marginally but by no means extraordinarily over the past 30 years. Factor the insane growth of health care costs and prisons over that time, and you more than account for the growth — and the sense that everything else is being squeezed out.
California has had Republican governors for 22 of the last 28 years.
Nicomaco
California Tax Rankings (1st least; 50th highest)
Gasoline Tax – 50th
Capital Gains on Real Estate – 50th
Sales Tax – 49th
Corporate Income Tax – 33rd
Property Tax – 18th
Special Taxes:
Utility User’s Tax – 50th (only found in California)
School Parcel Tax – 50th (redundant property tax for schools found only in California)
Source: Tax Foundation
About those “facts” regarding the percentages of taxes paid by the wealthy: Of course they pay most of the taxes! They’re the ones making the most money!
It sounds like California wasn’t the right place for you. I’m glad you’re gone.
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