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Tuesday, January 22, 2013

CA Taxes Too High to Invest or Live Here. Just ask Phil Mickelson, Tiger Woods and Intel

In the last election, CA voters voted to enact a retroactive tax hike of an additional 3.0% on its richest citizens for all of 2012.  Those "only" making $250,000 a year will "only" have to pay an additional 1.0% for a total rate of 10.3% on ALL income (earned and capital gains are taxed at the same rate in Taxifornia.)  We also raised our sales taxes so I now pay 8.625% in Santa Clara county. 

Those making over $500,000 a year in California will pay the highest rate of 12.3% on 2012 and 2013 income.  I posted a full summary of the rates and changes here:

Many have claimed some might get tired of this nonsense and leave the state.  This weekend, 42-year old PGA Tour star Phil Mickelson, with $67 million in PGA Tour earnings which does not count his endorsement income that can be far more, said he would make drastic changes because of higher Federal and California taxes.
"It's been an interesting off-season," Mickelson said. "And I'm going to have to make some drastic changes. I'm not going to jump the gun and do it right away, but I will be making some drastic changes."
Mickelson did not rule off just flat-out retiring from golf.  "I'm not sure what exactly, you know, I'm going to do yet," he said.
"I'll probably talk about it more in depth next week. I'm not going to jump the gun, but there are going to be some. There are going to be some drastic changes for me because I happen to be in that zone that has been targeted both federally and by the state and, you know, it doesn't work for me right now. So I'm going to have to make some changes.

"If you add up all the federal and you look at the disability and the unemployment and the Social Security and the state, my tax rate's 62, 63%. So I've got to make some decisions on what I'm going to do."
Mickelson could save as much as 12.3% just by moving to Florida where there is no state income tax.  He's on the road most of the year so staying in California might be more of a family decision.  From Phil Mickelson warns of ‘drastic changes’ because of state, federal tax situation
He acknowledged that he could end up leaving his home state of California. And he further agreed that the financial issues were the reason why he pulled out of an ownership team that purchased the San Diego Padres back in August.
This is the first I've heard of people making a decision NOT to invest in CA due to the higher taxes.

Today Tiger Woods, in his Tuesday morning news conference before this week's Farmers Insurance Open at Torrey Pines, said he agrees with Phil Mickelson.
"Well, I moved out of here back in '96 for that reason. I enjoy Florida, but also I understand what he was, I think, trying to say. I think he'll probably explain it better and in a little more detail."
Tiger Woods and girlfriend Lindsey Vonn
Of course, Intel builds its factories outside of CA even though its headquarters is here and the whole Silicon Valley used to be full of expensive (high property tax) chip making factories. They are almost all gone now... gone to states with lower tax rates.


 





Update 8/13/13:  Can I say "I told you so?"

Californians flee to Nevada to escape taxes, agents say
  • George Ashley of the Nevada accounting firm Ashley Quinn said his company has "had at least 100 serious inquiries" from Californians interested in moving to the Nevada side since the passage of Proposition 30, including people with "large liquidity events" like the sale of a company or a lot of stock.
  • Twelve of them have made the move, he said.
  • Craig Zager of Coldwell Banker Select in Zephyr Cove, said he has represented 38 buyers this year for Nevada side homes, almost all of them, he said, Californians moving because of Proposition 30.
  • Cerretti said she can "directly tie" three multimillion-dollar sales this year to the passage of Proposition 30. "I'm working with another lakefront buyer now who says that was it, they're not taking another penny of his money."
My guess is the higher tax rate, post Prop 30, more than makes up for losing a few rich folk, but it is something to consider when constantly looking at raising taxes to solve problems.

Wednesday, January 02, 2013

Highlights of the Fiscal Cliff Deal

The big "good news" for me is this makes the tax rates PERMANENT so we can plan for the future. The big "bad news" for me is this deal is a "joke" in that it kicks the can down the road where the can is unsustainable budget deficits to fund out of control government spending.  See my article "SPY Soars As U.S. Borrowed 51.6¢ Of Every Dollar Spent In November 2012."
— Current tax rates would be permanently extended for singles making $400,000 or below, and permanently extended for couples making $450,000 or below;

— For singles, capital gains and dividends of $400,000 or below would be permanently taxed at 15 percent; capital gains and dividends above $400,000 would be permanently taxed at 20 percent;

— For couples, capital gains and dividends of $450,000 or below would be permanently taxed at 15 percent; capital gains and dividends above $450,000 would be taxed at 20 percent;

— The Alternative Minimum Tax would be permanently patched;

— Estates over $5 million would be taxed at 40 percent, and that tax rate would be permanently extended
The payroll tax cut is allowed to lapse, so the employee portion of the Social Security tax will return to 6.2% from 4.2%.
—The Act also extends some farm support schemes for a year to avert the "dairy cliff" that many feared would double the price of milk.
By making the Bush/Obama tax cuts permanent, the "deal" actually adds about $4 trillion to the deficit over the next decade.

The hope is to raise $600B in new revenue over 10 years. All in all, overall taxes will increase for over 75% of households in 2013, says the Tax Policy Center.

The "fiscal cliff" deal passed by 89 to 8 in the Senate then passed by 257 to 167 in the House of Representatives. 

President Obama thanked lawmakers from both parties for their votes, saying it allows him to "sign a law that raises taxes on the wealthiest 2 percent of Americans while preventing tax hikes that could have sent the economy back into recession."

Of course, taxes will probably go up in the future if Democrats were to control the white house, the Senate and the House of Representatives. Likewise, if the GOP can make some huge changes to control both the house and senate plus the white house, then taxes on the wealthy could go down again.

What we really need is fundamental changes that cap deductions at some "reasonable amount." By reasonable, I suggest not letting Mitt Romney buy his way into heaven with a taxpayer funded donation to his Mormon Church. Why should we fund that with a tax deduction? Likewise, I don't see why people living in low cost housing areas should subsidize my mortgage or the super high taxes we pay in Taxifornia or New York with deductions for these on federal taxes. I'd love to see the top rate lowered but then limit total deductions to some "reasonable" number like $50K a year which is high enough for most but it captures the excessive deductions of the very wealthy.


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