Do you expect wealthy taxpayers to flee the state due to California’s high income tax rate?
- Yes. (65%, 258 Votes)
- No. (36%, 142 Votes)
Total Voters: 400
California’s economy is finally in the first stages of a true recovery, according to Chapman University’s Inland Empire Economic Forecast. In the Inland Empire in 2012, evidence of the recovery included:
- a 1.6% annual jobs increase, the greatest increase since the recession;
- an 8.7% yearly increase in residential construction starts, the greatest since the recession;
- a solid average home price increase of 8% on overall home sales; and
- a steep decrease of 22-32% in notices of default (NODs) recorded.
Chapman expects similar positive movements across the state in 2013.
Will 2013 be a good year to buy or build a home in the Inland Empire? Chapman University says yes. They forecast:
- the number of jobs will increase by 2.2% in 2013;
- residential construction starts will increase by 14.6% in 2013;
- home prices will increase 7% in 2013; and
- interest rates will not increase until early 2014.
While the state’s economy will not slip back into a recession in 2013, upward movement will be slight. This weakness is due largely to the expiration of the payroll tax break, which increases the payroll taxes — and decreases the spending power — of employed Californians by two percentage points. As consumers have less money in their wallets ($1,000 less for the average Californian employee), less spending will occur across all sectors of California’s economy.
Chapman economists forecast California’s state income tax is another black cloud looming over the long-term economic recovery. California has the highest income tax of any other state, coupled with one of the highest sales taxes. As taxes continue to increase each year, Chapman feels wealthy taxpayers are more likely to leave California’s amenities behind and head for states with fewer taxes.
If this happens, the decrease of wealthy taxpayers will detract from the state budget. With a smaller state budget, there will be even fewer government workers and smaller pensions. Since the economy’s strength boils down to jobs, outward migration of wealthy taxpayers will be an issue going forward.
first tuesday insight
There is reason to be optimistic for California’s economy and housing market in 2013. But it is far too early to get carried away. Today is a time to proceed with caution, not wild abandon.
Jobs, while slowly improving, have a long way to go before completely recovering. Since the quantity and quality of jobs are paramount to California’s recovery, look first to employment to indicate the economy’s strength.
238,000 jobs were added statewide in 2012 — a 1.7% increase.
In order to return to pre-recession employment rates, California must add at least 350,000 jobs every year and sustain that rate for 18-24 months. first tuesday forecasts this process will conclude in 2016. By then, the interim growth in population will require another one million jobs and three more years will create them. Thus, 2019-2020 will be big years in real estate.
Likewise, other factors influencing the housing market predict recovery — but not a quick one. first tuesday forecasts for 2013:
- single family residential (SFR) and multi-family construction starts will continue to slowly improve, returning to normal around 2016 for multi-family starts and 2020 for SFR starts;
- home prices will continue to experience month-to-month volatility, varying across price-tiers, while generally increasing with inflation through 2017; and
- interest rates on mortgages will remain level through 2013, not to increase until 2015.
Additionally, and frankly, some economists ignore the evidence, and pander to their audience. Chapman University’s forecast on wealthy taxpayers fleeing California is dead wrong.
Anecdotal evidence (such as Phil Mickelson’s recent announcement that he plans to leave California due to the high tax rate on wealthy taxpayers like him) never makes a trend. In fact, research and data point to trends which state just the opposite.
Numerous studies show that wealthy taxpayers very seldom move due to tax rates. Instead, factors like jobs, costs of living (including housing prices) and local cultural amenities influence their decisions to move.
Lucky for California, entertainment hubs, coastal geography and job hot spots like Silicon Valley are going nowhere. Who would trade sunny California’s climate for tax havens like South Dakota or Nevada, if given the choice?
A comparably pleasant climate can be found in income tax-free Florida. However, Florida’s population has actually declined since 2008, likely in response to the many jobs lost during the recession.
In contrast, California’s population has continued to increase at a compounded annual rate of around 1% since the recession — increased taxes included, added with public acclaim. California also boasts a larger number and percentage of millionaires than Florida, despite our nominal high income tax rate, according to the Internal Revenue Service (IRS).
Thus, tax rates on high-income taxpayers have a de minimus effect on California’s economy: past, present and future.
Related articles:
Center on Budget and Policy Priorities: Tax Flight Is a Myth
The New York Times: The Myth of the Rich Who Flee From Taxes
Agent advice
Agents: the housing market is extremely localized. As such, you need look to job creation, construction starts, home sales volume and the types of buyers in your region for the best indication of where your local market is headed. The U.S. Census is a great source for these regional numbers, or see the following charts from first tuesday for further regional and statewide analysis.
The rising trend in California construction starts
California tiered home pricing
Home sales volume and price peaks
Buyer purchasing power determines home prices
Re: The U.S. & Inland Empire Economic Forecast: Chapman University January 2013
We agree with First Tuesday about the Chapman University forecast.
So very many foreign persons of wealth, coming from countries that span the globe, have always preferred California.
American movies, many shot at California locations, have helped popularize such places as Beverly Hills and Santa Monica worldwide.
When the Shah of Iran had to flee his native land he did not flee to India or China or Kansas, but to California. Many foreign elite that stole large sums from their own people and then fled their country with the loot ended up in California and New York. This has helped boost the organized crime statistics of both states.
If you could be a fly on the wall and hear internal conversations inside one of those huge mansions on the hill, and thereby learn HOW the money to buy that mansion was procured, you might be shocked.
Large numbers of foreign born doctors, for example, have already been arrested by the President’s army of investigators working on Medicare and Medicaid fraud—which conservative estimates place at $90 billion. Whole clinics based on scams have been closed. And again, this is just the tip of the iceberg.
We can safely and confidently predict that MUCH MORE of this type of crime will be uncovered in all sectors of the economy–banking, medical operations, investment firms, mortgage firms, etc.
Have you ever wondered why so very many large sumptuous mansions are suddenly for sale in New Jersey and Connecticut? The rats are trying to jump ship.
In a sense, the New Age we have recently entered could be termed “an age of uncovering, ” as many hidden crimes will suddenly see the light of day.
Is this a harmful thing for America? It will lend to a period of some turbulence, but after all is said and done and all the unscrupulous, self-serving parasites are cleansed from the system, we will all enjoy a healthier economy wherein the common American can once again enjoy free markets (unburdened from criminal manipulation), a cleaner environment, cleaner food and water, less “tainted” education, and generally a more wholesome existence overall, where, once again the true human spirit may flourish.
The days of the oppressors are numbered. We have a LOT to look forward to, after the intermediary pain. Good days lie ahead.