Government Bytes


Money Walks, and Here's Proof

by Brandon Arnold / /

Just a few weeks ago, Phil Mickelson made headlines when he said he might pack up his golf clubs and move out of California.  The reason for his possible move? In November, California voters approved a ballot measure that pushed its already high top income tax rate from 10.3 percent to 13.3 percent – now the highest in the nation.  This means that Mickelson might be one of many high-earners leaving the Golden State.

To better understand California’s problem, look at nearby states like Nevada and Washington where there is no state income tax. And to Arizona, where the top rate is a relatively low 4.54 percent.  These states have far better business tax climates than California, too.  The Tax Foundation says California’s climate is the third-worst in the nation. By contrast, Nevada’s is the third-best and Washington’s is the sixth-best.

What are the effects of this huge tax disparity between California and other states in the region?  Thanks to research by Travis Brown and his book, How Money Walks, we’re finding out.  Travis has tracked the flow of wealth and population over the past 15 years to find where people – and their bank accounts – are moving.

His research suggests to us that California’s high tax rates have had a significant impact on wealth migration and that Mickelson’s potential move would be part of an ongoing trend.  From 1995 to 2010, the Golden State has experienced a net wealth loss of $37.8 billion.  The bulk of that money is moving to states with low or no income taxes, like the aforementioned Nevada ($8.2 billion), Arizona ($6.3 billion) and Washington ($3.9 billion).  Even no-income tax states that are much farther away like Texas ($4.8 billion) and Florida ($2 billion) are drawing considerable wealth away from California.

Speaking of Florida, a state with no income tax and the fifth-best business tax climate, it has been a major beneficiary of poor tax policies in other states. Over the same 15 year period that witnessed an exodus of wealth and population from California, Florida gained $86.4 billion in wealth and more than 900,000 residents. The majority of these dollars and people are coming from high-tax states like New York, New Jersey and Illinois.

Across the country, many states are considering major tax reform measures in 2013.  Policymakers should study the research at before they enact any changes and learn about how low tax rates could help their state attract wealth.  

To learn more, please watch this brief video clip featuring NTU’s Pete Sepp and Travis Brown.