...that broke the camel's back.
Professional golfer Phil Mickelson has recently taken a little flak for indicating that he plans on leaving California in the wake of his announced plans to relocate to a state with lower tax rates. Specifically, California has recently increased their income tax rates by roughly 3 percent for the next seven years. The sales tax was also increased. These changes were made in an attempt to close the current sizable annual budget deficit being run by the state of California.
My sympathies lie primarily with Phil. We aren't even close to being in the same income range, but as a matter of principle, I believe that a person has a right to the income they earn that should not be cavalierly set aside. However, there are a couple of issues that have been studiously ignored in this discussion.
The first is the matter of comparing apples to apples.
According to Mr. Mickelson, his future total tax rate will be a little north of 60% of his income. This includes federal income taxes, federal FICA taxes, federal Medicare taxes, state income taxes, and one presumes that local income taxes are included if appropriate. Some of his critics have compared that tax rate with the 14% income tax rate paid by Mitt Romney and his wife. That is an incomplete comparison designed to confuse the issue.
The Romney's most certainly paid payroll and appropriate income taxes for any wages they may have received. Of course, if they did not receive any wages, then they didn't pay payroll or income taxes at those rates.
Under the area of comparable tax rates, the double taxation of dividends is also studiously ignored in these discussions. Dividends are paid out of after tax profits by corporations. When a further tax is then levied on the individual receiving those dividends, then the money is effectively taxed at the cumulative rate of the corporate income tax and the individual investment tax.
It is partially due to this double taxation that we have elected to charge a lower tax rate on investment income. Good, bad, or indifferent; I make no assertion as to whether or not this is good public policy.
The second issue is the relative need for government to consume Mr. Mickelson's wealth. Back in 2009 when Arnold Schwarzenegger was governor of California, Robb Allen of Sharp as a Marble had a partial list of agencies, commissions, boards, and other state government organizations. At the time, the suggestion was that prisons would have to close and state police would have to be laid off to balance the budget. The point at the time is that there were a great many other state agencies that could have been down sized or perhaps even eliminated in order to minimize cuts to critical prison and law enforcement budgets.
A similar case can be made with respect to federal government spending as well.
As a former resident of California, it truly pains me to watch the current fiscal debacle unfold. The roots of that debacle can be found in the lack of government fiscal restraint. Poor spending priorities can never be solved by increasing taxation.
When taxation levels are high enough to represent injustice to the people earning that money, precautions to limit exposure to confiscatory taxation are more than justified. The camel has no obligation to stand still as the last straw is dropped in place.
...that broke the camel's back.