When golfer Phil Mickelson hinted last January that he might leave California because of a big jump in his federal and state tax rates, it was met with such venom that he later apologized, saying it was insensitive to state his opinion publicly when people are living paycheck to paycheck.

Mickelson still lives in California, but other wealthy people say they have moved out mainly or partly because of skyrocketing tax rates. Whether you sympathize or not, millionaires' migrating out of California has serious consequences to the state's bottom line and is something state leaders are watching closely.

In 2011, the top 1 percent of tax returns accounted for 41 percent of the state's personal income tax revenues, and that was before Proposition 30 raised rates on the rich. Meanwhile, about half of California adults paid no state income tax that year, according to an estimate from the state Finance Department.

Bryan Goldberg, who founded the Bleacher Report sports website and sold it to Turner Broadcasting for about $200 million in mid-2012, is moving his primary residence from San Francisco to New York this year. A major reason, he says, is Prop. 30 and the way it was applied retroactively.

Taxes in New York City, where he has started a new website, Bustle.com, are also high. Goldberg says his exodus "was more about creating a statement than it was about maximizing my personal income."

Prop. 30, approved by voters in November 2012, raised state income taxes retroactively to Jan. 1, 2012, on singles making more than $250,000 and married couples making $500,000. It raised rates by one, two or three percentage points through 2018, bringing the top rate on incomes above $1 million to 13.3 percent, the highest in the nation.

Avoiding income tax

Lee Schneider, a hedge fund salesman who works from home, also cited Prop. 30 as the "deciding factor" for his move from Walnut Creek to Austin, Texas, in 2012. The California native had recently built a $2 million house at the foot of Mount Diablo and took a loss on the sale, but "I can make half of it back in one year of tax savings," he says.

Schneider's neighborhood in Texas, which has no state income tax, is full of cars with license-plate frames from California dealerships. On a flight from Austin to Los Angeles shortly before Christmas, 11 of the 12 seats in the emergency row were occupied by people who had moved from California to Texas, he says.

Another telling statistic: On the Nevada side of Lake Tahoe, where there is no state income tax, 151 homes sold for more than $1 million in 2013. That was 86 percent higher than the previous year. On the California side, only 67 homes sold for more than $1 million, down 9 percent from 2012, according to Susan Lowe, a broker with Chase International.

Filling the coffers

It's too soon to say whether these anecdotes represent a larger trend, but state leaders realize the growing dependence on personal income tax revenue. The Legislative Analyst's Office predicts that they will comprise a record 66 percent of the state's total general fund revenue in 2014-15. Before Prop. 30, personal income tax revenues had exceeded 60 percent of the general fund only once, at the end of the dot-com boom.

Thanks in part to a capital gains windfall, Gov. Jerry Brown's budget proposal released last week estimates that Prop. 30 alone will generate $5.7 billion in additional income tax revenues in fiscal 2014-15. That represents 5.4 percent of total general fund revenue, projected at $106 billion.

The budget makes no allowance for migrating millionaires. "There is no compelling data in the economics or demographics to cause us to do that," says H.D. Palmer, a spokesman for the California Department of Finance. Research suggests "there is no correlation between higher marginal rates and out-migration."

 

© 2014 Hearst Communications, Inc.

http://www.sfgate.com/business/networth/article/State-leaders-closely-watch-migrating-millionaires-5135090.php