At the high end of moving out (rich people), California is unappealing because it's budgetfucked. Education, transportation, public services, and everything else will suffer for a long time. This leads to their crazy high state income tax and crazy high sales taxes and municipalities doing insane additional taxes for businesses on top of everything else.
The Bay Area may be the best place to create Show Me Your Food 13.0, but I think you can build things elsewhere with nicer conditions.
By the way, the reason the state is "budgetfucked" as you eloquently put it is because of low taxes, not high taxes. You may be interested in reading about Proposition 13, a scheme under which people who are sitting on massively valuable assets are taxed at lower rates than those who actively acquire and dispose of much less valuable assets, and where assets held by corporations are taxed static amounts (in terms of absolute magnitude, not rates) in perpetuity.
People refer to Prop 13 as if it's going to be the budget-savior, but don't forget that property taxes are distributed to municipalities (counties and cities), so if Prop 13 was dropped, wealthy cities would get even more revenues, while ghettos would remain the same, as there's more turnover at low-end of the real estate market (so constant reassessment of property values that more or less follows the boom and bust cycle).
City of Mountain View ran at a profit for a few years, from what I recall, so having more money from Google might result in couple of additional parks or extra lanes on Shoreline, but not going to be the game changer for South Central LA.
Quite true. Prop 13 is an abomination. Instead of only homeowners paying reasonable real estate tax, they've essentially made everybody in california subsidize low-tax-locked real estate owners. Now you get to have the fun of paying virtual real estate tax without owning property.
It turns out, we have the ability to not live there!
It's not quite sane to take a multimillion dollar exit in California when Seattle has zero additional overhead. Though, it is an absolute dickhead move to build your company in California then "establish residency" in a zero-income/capital gains tax state solely to avoid California tax harassment.
It's California's stupid fault for picking that tax system. It's not like residence-based income taxes were decreed by God as the only way to fund a government.
residence based taxation is a stealth wealth tax. us is illegal wealth tax directly. problem was in 1970s, people bought 10k house on 3k/ye wages. 10 yes later, it was million dollar house. 3k/wages cannot pay taxes on million dollar house. so that is why they passed such a law. otherwise, people would have all had to sell house for capital gains and move out of california in 1970s.
This is not justifying system, but explaining how these thnings come about. Again, it has to do with people not being able to afford the either the real-estate (at market values) or the taxes based on their incomes. taxes just second order effect though.
The politicians were showing sympathy with the grandma on social security liing in her house she bough in 1940 with no plumbing, etc. It was not her fault NASA moved in next door to send men to the moon, etc. That, at least was the context. I don't have sympathy for entitled people either, particulalrly those we are talking about who "developed" and paved over CA with freeways. But before them was a genration of home-steaders, who had no income because they were modest people. They took a lot more risk and invested a lot of sweat equity to make CA a better plave to libe, so perhaps worth showing them some respect...etc. or not YMMV.
I think the point was that Prop 13 was a gambit by incumbent asset owners to disproportionately tax newcomers. This worked perfectly well (for the incumbents) as long as California enjoyed robust net population growth, because the disproportionate tax burden was primarily born by newcomers. However, now that net migration has slowed, the disproportionate burden is now mainly born by natives of the state. It just doesn't make sense to continue this scheme, unless you are just a bitter old Boomer who hates your own children.
The problems of getting rid of Prop 13 will in the details. If you just eliminate it, you will drop housing prices across the board, and every homeowner will be hit (just as every homeowner reaped an unearned windfall at the time 13 was enacted.) There may be some way to phase it out over many years, or to get rid of the more ridiculous protections for corporate-owned real estate and inheritance transfers.
I'm having a tough time buying it. Imagine someone who's old and in the (lucky) position to sit on a highly appreciated real estate lot. Their potential behavior:
(a) enjoy the low property tax they have to pay, while patting themselves on the back
(b) sell to downsize and pocket the difference, retire to greener pastures
I think (a) is more rational if you're on a giant farm, and this way you don't have to sell the pieces to pay the property tax bill any time the land value fluctuates because of external economic cycles.
(b) is more rational with any residential estate. That's why a San Francisco magazine would complain about the influx of young tech workers, not the influx of little old retired ladies, and most older houses in Atherton and Palo Alto are bought for teardown value.
So consider a 65 year old who purchased a house in San Francisco in the early 70s for $50,000. This house is now most likely worth about a million now. However, it is taxed at a far lower rate.
They can sell and repurchase in California and keep their old taxes provided that they don't purchase a more expensive house (this is limited to people over 55 and is a one time thing)
There is also one other major exemption - heirs to a property can keep the old property tax rate! I've always been amazed that California is essentially creating a low tax aristocracy based on inherited titles to land, but that is exactly what we have done.
Now, I suppose the retiree could sell the house and move to Texas, but now you're going to be paying a much higher tax rate. If you're a true prop 13 aristocrat, you'd probably have to buy a house that is worth no more than 20% of your current house's value to come out ahead, and you'd need to uproot to texas to do it.
If you're a young family looking to buy for the first time, or looking to trade up (triggering a reassessment of your property taxes), then it does make economic sense to move to Texas. Your prop taxes will be high, but you won't face California's income tax, and you also won't have to subsidize the low tax rates for the titled, landed aristocrats next door.
As for the young tech workers... well, the SF Bay Area is incredibly well positioned for high tech. It has an incumbent advantage and Berkeley, Stanford, and UCSF all within a stone's throw of each other. I think that our regulatory environment is a disadvantage, but clearly not enough to offset. I remember PG mentioning during an interview at the Hoover Institute that bad as things are, things would have to get incredibly bad to drive high tech out of California (I recall him joking "don't tell them").
>By the way, the reason the state is "budgetfucked" as you eloquently put it is because of low taxes, not high taxes.
This is utter nonsense. California has both a high income tax and a high sales tax, and while property tax rates are low, property prices are high. Where I live you can pay seven figures for a tract home.
Tax receipts in the state are quite healthy - the problem is on the spending side, specifically a large and grossly overpaid bureaucracy.
Comments
At the high end of moving out (rich people), California is unappealing because it's budgetfucked. Education, transportation, public services, and everything else will suffer for a long time. This leads to their crazy high state income tax and crazy high sales taxes and municipalities doing insane additional taxes for businesses on top of everything else.
The Bay Area may be the best place to create Show Me Your Food 13.0, but I think you can build things elsewhere with nicer conditions.
"In other words, the highest-income Californians were less likely to leave the state after the millionaire tax was passed."
http://www.stanford.edu/group/scspi/_media/working_papers/Va...
By the way, the reason the state is "budgetfucked" as you eloquently put it is because of low taxes, not high taxes. You may be interested in reading about Proposition 13, a scheme under which people who are sitting on massively valuable assets are taxed at lower rates than those who actively acquire and dispose of much less valuable assets, and where assets held by corporations are taxed static amounts (in terms of absolute magnitude, not rates) in perpetuity.
People refer to Prop 13 as if it's going to be the budget-savior, but don't forget that property taxes are distributed to municipalities (counties and cities), so if Prop 13 was dropped, wealthy cities would get even more revenues, while ghettos would remain the same, as there's more turnover at low-end of the real estate market (so constant reassessment of property values that more or less follows the boom and bust cycle).
City of Mountain View ran at a profit for a few years, from what I recall, so having more money from Google might result in couple of additional parks or extra lanes on Shoreline, but not going to be the game changer for South Central LA.
Quite true. Prop 13 is an abomination. Instead of only homeowners paying reasonable real estate tax, they've essentially made everybody in california subsidize low-tax-locked real estate owners. Now you get to have the fun of paying virtual real estate tax without owning property.
It turns out, we have the ability to not live there!
It's not quite sane to take a multimillion dollar exit in California when Seattle has zero additional overhead. Though, it is an absolute dickhead move to build your company in California then "establish residency" in a zero-income/capital gains tax state solely to avoid California tax harassment.
It's California's stupid fault for picking that tax system. It's not like residence-based income taxes were decreed by God as the only way to fund a government.
residence based taxation is a stealth wealth tax. us is illegal wealth tax directly. problem was in 1970s, people bought 10k house on 3k/ye wages. 10 yes later, it was million dollar house. 3k/wages cannot pay taxes on million dollar house. so that is why they passed such a law. otherwise, people would have all had to sell house for capital gains and move out of california in 1970s.
This is not justifying system, but explaining how these thnings come about. Again, it has to do with people not being able to afford the either the real-estate (at market values) or the taxes based on their incomes. taxes just second order effect though.
You will have to excuse me if I don't sympathize with the taxation problems of people who are sitting on unrealized million-dollar capital gains.
The politicians were showing sympathy with the grandma on social security liing in her house she bough in 1940 with no plumbing, etc. It was not her fault NASA moved in next door to send men to the moon, etc. That, at least was the context. I don't have sympathy for entitled people either, particulalrly those we are talking about who "developed" and paved over CA with freeways. But before them was a genration of home-steaders, who had no income because they were modest people. They took a lot more risk and invested a lot of sweat equity to make CA a better plave to libe, so perhaps worth showing them some respect...etc. or not YMMV.
>>> they've essentially made everybody in california subsidize low-tax-locked real estate
That's not true - your tax base is set at the time of the purchase. And California real estate market is quite vibrant compared to other states.
I think the point was that Prop 13 was a gambit by incumbent asset owners to disproportionately tax newcomers. This worked perfectly well (for the incumbents) as long as California enjoyed robust net population growth, because the disproportionate tax burden was primarily born by newcomers. However, now that net migration has slowed, the disproportionate burden is now mainly born by natives of the state. It just doesn't make sense to continue this scheme, unless you are just a bitter old Boomer who hates your own children.
The problems of getting rid of Prop 13 will in the details. If you just eliminate it, you will drop housing prices across the board, and every homeowner will be hit (just as every homeowner reaped an unearned windfall at the time 13 was enacted.) There may be some way to phase it out over many years, or to get rid of the more ridiculous protections for corporate-owned real estate and inheritance transfers.
I'm having a tough time buying it. Imagine someone who's old and in the (lucky) position to sit on a highly appreciated real estate lot. Their potential behavior:
(a) enjoy the low property tax they have to pay, while patting themselves on the back
(b) sell to downsize and pocket the difference, retire to greener pastures
I think (a) is more rational if you're on a giant farm, and this way you don't have to sell the pieces to pay the property tax bill any time the land value fluctuates because of external economic cycles.
(b) is more rational with any residential estate. That's why a San Francisco magazine would complain about the influx of young tech workers, not the influx of little old retired ladies, and most older houses in Atherton and Palo Alto are bought for teardown value.
I'm not sure it works like this. Keep in mind that most states don't have a tax system like prop 13. Texas actually has fairy high property taxes...
http://www.nytimes.com/2007/04/10/business/11leonhardt-avgpr...
So consider a 65 year old who purchased a house in San Francisco in the early 70s for $50,000. This house is now most likely worth about a million now. However, it is taxed at a far lower rate.
They can sell and repurchase in California and keep their old taxes provided that they don't purchase a more expensive house (this is limited to people over 55 and is a one time thing)
http://www.boe.ca.gov/proptaxes/faqs/caproptaxprop.htm
There is also one other major exemption - heirs to a property can keep the old property tax rate! I've always been amazed that California is essentially creating a low tax aristocracy based on inherited titles to land, but that is exactly what we have done.
Now, I suppose the retiree could sell the house and move to Texas, but now you're going to be paying a much higher tax rate. If you're a true prop 13 aristocrat, you'd probably have to buy a house that is worth no more than 20% of your current house's value to come out ahead, and you'd need to uproot to texas to do it.
If you're a young family looking to buy for the first time, or looking to trade up (triggering a reassessment of your property taxes), then it does make economic sense to move to Texas. Your prop taxes will be high, but you won't face California's income tax, and you also won't have to subsidize the low tax rates for the titled, landed aristocrats next door.
As for the young tech workers... well, the SF Bay Area is incredibly well positioned for high tech. It has an incumbent advantage and Berkeley, Stanford, and UCSF all within a stone's throw of each other. I think that our regulatory environment is a disadvantage, but clearly not enough to offset. I remember PG mentioning during an interview at the Hoover Institute that bad as things are, things would have to get incredibly bad to drive high tech out of California (I recall him joking "don't tell them").
>By the way, the reason the state is "budgetfucked" as you eloquently put it is because of low taxes, not high taxes.
This is utter nonsense. California has both a high income tax and a high sales tax, and while property tax rates are low, property prices are high. Where I live you can pay seven figures for a tract home.
Tax receipts in the state are quite healthy - the problem is on the spending side, specifically a large and grossly overpaid bureaucracy.
24 states spend more per capita than does California, so I think your argument fails on the facts.
Where are you getting that? It's hard to believe, given that California has the 4th highest per capita tax burden:
http://www.usatoday.com/story/money/personalfinance/2012/10/...
http://www.nasbo.org/sites/default/files/State%20Expenditure...
See page 7 for the spending amounts. I don't see how tax revenues as a fraction of income (your link) has anything to do with spending per capita.
Where is the ranking in per capita expenditures? I don't see it?