Wealthy Californians are facing the prospect of billions in new taxes, adding to one of the highest U.S. tax burdens in a state that’s already been losing thousands of people every month to lower-cost locales.

Voters in November will decide whether to levy an additional 1.75% tax on income above $2 million to raise money for electric vehicles and wildfire prevention—a measure that has divided Democrats and drawn opposition from billionaire donors and Governor Gavin Newsom. More locally, Los Angelenos will decide whether to increase taxes on the sale of mansions, while San Francisco is considering fees on second homes used by part-time residents.

Tax-the-rich initiatives are seen as one way to address California’s myriad of intractable crises, from climate change to homelessness, in a state that prides itself on its progressive ideals. Yet the home to nearly 40 million people also is struggling with a soaring cost of living, population declines and the loss of big-name companies that threaten to make it less attractive to high earners, who play an outsized role in its fiscal health.

Bashing California has become something of a pastime for a cohort of billionaires who bemoan its many problems, high costs chief among them. Elon Musk complained the state had become “complacent” when he announced his move to Texas, which has no personal income tax. Bond investor Jeffrey Gundlach has repeatedly threatened to abandon California after spending almost four decades in Los Angeles, listing “taxes, taxes, crime, fraud, homelessness, homelessness” as his aggravations.

“I think we’re one notch away from me having to leave,” Gundlach said during the Future Proof investing conference in September.

California’s current top tax rate of 13.3% on income is the highest in the nation. About 184,000 filers paid that rate in 2020, according to the state Franchise Tax Board. Yet they had a massive impact on revenue, accounting for 49% of income tax collections, or $50.9 billion, thanks to a progressive tax system that’s heavily dependent on financial markets. 

State Top Income Tax Rate
California 13.3% for $1 million+
Hawaii $400,000+
New York 10.9% for $25 million+
New Jersey 10.75% for $1 million+
District of Columbia 10.75% for $1 million+
  Source: Tax Foundation

Proponents of the state ballot measure, Proposition 30, say they aim to improve California’s quality of life, environment and social justice for the less affluent by redistributing wealth. And while some residents could choose to leave because of higher taxes, the revenue that it would raise—an estimated $3 billion to $4.5 billion a year, according to the state Legislative Analyst’s office—could more than offset that.

“California needs to step up to protect its own,” Bill Magavern, a former director of the Sierra Club, said in a statement supporting Proposition 30, which he co-authored. The measure was favored by 55% of likely voters in a September survey by the Public Policy Institute of California.

Voters in at least one other U.S. state will decide on taxing the wealthy next month: The ballot measure in Massachusetts will propose amending its constitution to allow for a new 4% surtax on annual income over $1 million. The resulting revenue, estimated very roughly at $2 billion, would be earmarked for education, roads and bridges, and public transport.

‘Famously Volatile’
California’s population declined by 173,000 from July 2020 to July 2021, according to the Department of Finance, with the number of people moving out domestically exceeding those moving in. High taxes may not be the primary force behind the departures. Droves of middle class families have relocated to states like Nevada, Arizona and Florida, where housing is more affordable.

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