Taxes

TX, AZ Likely To Benefit as CA Boosts Taxes

Businesses are already fleeing California to neighboring states

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A slim majority of Californians did something strange on Election Day. They voted to make themselves worse off while boosting the economies of Texas, Arizona, Nevada and other states.

They did this by passing Proposition 30, the brainchild of Democratic Governor Jerry Brown. The ballot initiative raises the sales tax from 7.25 percent to 7.5 percent and imposes higher income-tax rates on many Californians. The top marginal tax rate goes from the current 10.3 percent to 13.3 percent, one of the highest in the nation. The higher income taxes will lapse in seven years—but are retroactive to Jan. 1, 2012!

In Proposition 30, Brown entreated Californians to join him in a soak-the-rich scheme, sold as a panacea for the state's financially stressed school systems. However, Proposition 30 will hit almost all Californians. Both rich and poor families will pay higher sales taxes. One recent study found that millionaires don't move from California to avoid income taxes—but Proposition 30's threshold starts at $250,000, imposing new burdens on thousands of already heavily taxed families.