Contributor

Ray Haynes

Mr. Haynes is an Assembly member representing Riverside and Temecula. He serves on the Appropriations and Budget Committees. [go to Assembly Member Haynes website at California Assembly]

Rhetoric and Reality
Why taxing the Rich Doesn’t Work
[Ray Haynes] 9/30/03

The day he signed his multi-million deal with Nike, Tiger Woods became a Florida resident. He had lived in California his whole life, first in Orange County, then in Palo Alto. Why move to Florida? Well—California has a 9.3% tax on any income over $79,000; Florida has no income tax at all. To Tiger Woods, that means he saved about $4,000,000.00 in taxes by moving. He could buy a real nice house in Palm Beach for $4,000,000.00.

When Shaquille O’Neal moved from Florida to Los Angeles to play for the Lakers, he demanded a 20% increase in his pay from the team to make up for the higher California taxes he would have to pay.

These are just two examples of the fallacy being perpetrated right now that taxing the rich can solve our budget crisis. It can’t, for one simple reason—if we tax the rich, they’ll move, and take their taxes with them.

Today, 10% of the taxpayers pay 75% of the income tax. In fact, 32,000 taxpayers (the number of people in California that earn over $1 million per year) pay one-third of all the income taxes in California. That doesn’t include the sales taxes and property taxes they pay (rich people tend to buy more stuff than poor people do). It doesn’t include the lawyers, accountants, small businesses, car dealers, boat docks, personal employees, and hundreds of others who earn money from these rich folks, and pay taxes to the government on the income they make. Rich people add a lot to our economy, and thus add a lot to our tax base.

So—why do my left wing friends, particularly the three socialists, Bustamante, Camejo, and Huffington, want to increase taxes on the rich? It makes for good sound bites. It is easy for political types to say “I won’t tax you—I’ll tax that guy, and you don’t like him because he’s a rich snob anyway.” In fact, their proposal would, according to the Legislative Analyst’s Office, increase the taxes of the rich by 25%. That plays to all the worst emotions in all of us, and it is bad policy.

Why? Think of what you would do if you had that kind of money, and could move any place you wanted to move. Would you pay $4,000,000.00 to live in California, or put that $4,000,000.00 into a mansion on the Florida coast? You may not like the humidity there, but for $4,000,000.00, I would trade earthquakes for hurricanes. I would also buy my Rolls Royce in Miami instead of Beverly Hills, and I would hire my help in Palm Beach and not Newport Beach. The cost to California would be enormous.

In fact, the last time we raised taxes on the rich (92-93), we lost money, because the rich moved out of state. We had to reduce taxes (94-95) in order to bring them back, and, once they came back, we had massive surpluses.

It makes sense if you think about it. People with money usually have money because they are smart about how they spend their money. There are few things as portable as a rich person and his money. Try to raise taxes on them, and they move, and they take their taxes with them.

Bad policy is bad politics. Solving problems by raising taxes on the rich will not work, because they are smart people, and they will never pay those taxes. The problem in this state is that these types of solutions have been touted as good policy by the leftists who control the Legislature and the Governor’s office. Now you know why we have a huge, seemingly intractable, budget problem.

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