The approximate number of Californians who earned more than $2 million a year in 2019 and would therefore have to pay up if Prop. 30 passes at last count, according to the nonpartisan Legislative Analyst’s Office. Analysts say the number is now probably greater than 40,000. You’ve heard of “the 1%”? This is an even more rarified set than that: The 0.2%.
The rough share of the state’s personal income tax revenue paid by these 0.2%-ers, according to the most recent numbers. Personal income tax isn’t the only source of state money, but it’s by far the largest. Looking at the entire pot of cash that state lawmakers can draw on for discretionary spending, these select hyper-rich taxpayers cough up about one-fifth.
That’s a selling point for backers of Prop. 30. Unless you’re rich enough to plausibly be in the market for a private plane, this measure isn’t going to raise your taxes.
But for opponents, that narrow source of funding is exactly the problem. The highest earners tend to get the bulk of their money through their investments. Because the stock market and other financial markets soar to higher booms and sink to lower busts than the economy as a whole, the taxes they pay are notoriously volatile. That, opponents argue, makes the super rich a bad source for an ongoing, long-term investment.
California’s new top income tax rate, if Prop. 30 passes, for as long as 20 years.
That doesn’t mean the highest-earning 43,000 will be forking over more than 15% of their entire princely incomes to the state. The new rate would apply only to money earned in excess of $2 million per year.
Now, California’s top rate, 13.3%, starts at $1 million of income, which itself was set by a 2004 ballot measure taxing millionaires to fund mental health services. That’s already the highest marginal tax rate of any state in the country and far above the national average of 5.5%, according to the Tax Foundation. But it’s not necessarily an apples-to-apples comparison. Hawaii, with the second highest top rate of 11%, for example, hits anyone with earnings above $200,000.
Opponents of the measure say such a high rate could chase California’s wealthy — and all their cash — out of the state, which would pull the rug out from under the state budget. If that sounds familiar, critics of high taxes on the rich have been predicting an exodus of the elite for more than a decade. There’s never been much evidence to back up that narrative.
But this new record-high rate would put us in uncharted fiscal waters, especially now that federal law no longer allows taxpayers to write-off as much of their state tax payments.