Wednesday, February 6, 2013

Burdens on the Producing Class--Movie-Producing, That Is

A rather breathless story in today's New York Times talks about how millionaires are considering moving out of California. The state's new top income tax rate is 13.3 percent, and that combined with the new top federal rate of 39.6 means that the rich face a top tax rate of 51.9 percent! (Actually, if you add those two numbers you get 52.9, but never mind).

One small problem with this calculation, which all these rich people's accountants surely know: state taxes are deductible on your federal tax return. That means rich people face an effective state tax of (1-.396)*13.3, or 8.0 percent, for a combined rate of 47.6 percent. In fact, once you take account of deductibility all the differences between states shrink. I don't expect to see Hollywood moving en masse to Texas anytime soon.

1 comment:

  1. People don't move, but their money does, at the speed of a mouse click for anyone rich enough to take advantage of tax arbitrage. Of course, CA already had a pretty progressive state PIT prior to adopting a new top rate, so those who could avoid the net of its tax collectors probably already had.