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Friday, February 27, 2004

A Billion Here, A Billion There -- Pretty Soon We're Talking Real Money

Some argue that you can't tax golden eggs because the geese will just run away. If California reinstates its top 11% tax rate on incomes over $400,000, then what's to stop the rich from moving out of Beverly Hills and Belvedere and Napa and settling down in Dry Duck Gulch, Nevada? After all, Nevada's state income tax rate is zero -- there's no Nevada tax on personal incomes.

Consider, tho: IRS Statistics of Income for year 2001 show 30,843 Californians filed tax returns that year reporting income over $1,000,000. California had 16% of the 193,000 income millionaires in the US that year, tho just 12% of the US population. Nevada, with 0.75% of US population had 1,919 income millionaires -- 1% of the total. So even tho California now has a 9.3% state income tax rate (and no breaks for capital gains) and Nevada has a 0% rate, they seem to be equally attractive for high income folk. Maybe state income taxes (which are deductible, so reduce Federal taxes somewhat) aren't that big a factor in deciding where to live. Maybe CA is more expensive than NV, but also nicer. Maybe CA spends tax money in ways that the rich find attractive. (Sure, they don't want to pay for it. Who does?)

The same 16:1 CA to NV ratio seems to apply to the truly rich. According to the current issue of Forbes, California is home to 66 billionaires, while Nevada has only four.

But what if people *say* they live in Nevada but really spend lots of time in California? Turns out that the tax authorities are wise to such scams. Here's the technical definition of "California resident". Ask yourself -- if you were a billionaire, would you want to spend your remaining time on earth in a courtroom fighting tax fraud charges? What's the point of having money if you have to spend all your time fighting to hang on to it?



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