Voting with Our Feet, Part 6: Losing the Very Rich

Here are three examples that show that rich people vote with their feet in response to high taxes.

Item: California, Freshly Recovered from Disaster, Appears on the Verge of Backsliding

Arnold Schwarzenegger’s lurch to the left after the defeat of his initiatives in November is unmistakable. Too bad that he’s doing it just as the state’s budget has moved from the $25 billion deficit that led to Grey Davis’s ouster to perhaps being in balance in the 2006-2007 fiscal year.

The problem is, a lurch to the left usually involves raising taxes. Before The Terminator goes this route, he might consider the following from OpinionJournal.com’s Political Diary (link not available):

California lost nearly 40,000 millionaires during the Gray Davis era when taxes were on the rise and spending spiraled out of control. Those millionaires accounted for almost $5 billion in revenues every year. Raising taxes, says Mr. Laffer (Arthur Laffer, the father of supply-side economics–Ed.), “would accelerate the exodus of the talent pool and tax base out of the state.”

The $5 billion is about 4% of the state’s $118 billion budget.

Item: Teenage Golf Prodigy May Leave State

Michelle Wie may move from Hawaii because of its extraordinarily high income tax:

Now that Michelle Wie has entered the exclusive world of millionaires, she and her advisers will at some point have to decide whether it makes sense for her to live in Hawaii.

Wie’s bonds with Hawaii are strong; her home, school and family are here, and so are her most zealous fans.

But for purely financial reasons, Hawaii is an unattractive place for wealthy people like Wie to live because of its income tax rate, one of the highest in the nation.

With the teenage golfer recently signing endorsement deals with Nike and Sony said to be worth $10 million a year, accountants and tax attorneys in Hawaii say they expect Wie to eventually move to a state like Nevada or Florida that doesn’t tax income. Those states have become havens for golf professionals.

A move to the Mainland would certainly smooth out the logistics of tournament travel, but leaving Hawaii could also save Wie nearly as much money as she could pick up by winning a major tournament. With its 8.25 percent tax on incomes above $40,000, Hawaii would take $825,000 of Wie’s estimated $10 million, plus a big chunk of her tournament winnings.

….. About 2.5 percent of Hawaii taxpayers earn more than $200,000 a year, but they contributed about 20 percent of the $956 million in income tax collected by the state in 2002.

Item: Controversy over European Tax Haven Spills onto the Playing Field

The tiny European country of Monaco is so desirable as a place for professional soccer players to live that the tiny country’s own team may be near becoming a European power in the sport. And their competitors are furious (the article is from the spring and I don’t know how the dispute involved got settled):

Monaco has revived club soccer in France with surprise victories over Real Madrid and Chelsea this season, and annoyed French competitors in the process.

Monaco, which faces Chelsea tomorrow for a place in the final of Europe’s elite Champions League, has “an unfair advantage” over clubs in France because of its tax laws, said Jean-Michel Aulas, 55-year-old president of Olympique Lyonnais. Lyon lost in the quarterfinals. Because non-French people don’t pay income tax there, Monaco spends less than half as much as Lyon to pay a player $1 million net a year.

As Monaco chases a first European title and prize money of 10 million Swiss francs ($7.8 million) plus broadcasting revenue, opponents such as Aulas and Marseille President Christophe Bouchet are threatening the 80-year-old club’s existence. The French league should eject Monaco unless it pays an entrance fee “to even things up,” Aulas said.

….. The soccer team can afford to hire stars such as striker Fernando Morientes, on loan to Monaco from record nine-time European champion Real Madrid, because of tax breaks, say rival presidents. He earned about 3 million euros ($3.6 million) last year at Madrid. Morientes, 28, is the tournament’s top scorer this season with eight goals.

Monaco has to pay $1.5 million for a foreign player to pocket $1 million, French sports daily L’Equipe reported. Svara declined to comment. For the player to get the same in France, where social charges are 20 percent higher and the top marginal tax rate is 48 percent, clubs need to shell out $4 million.

Instead of complaining, the “French competitors” might ask themselves why their government is allowed to take 75% of anyone’s earnings.
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Previous “vote with our feet” posts:
- Part 1: What Thanksgiving Is Partially About
- Part 2: It’s the Taxes, Stupid
- Part 3: Walking Away from Academic Excellence
- Part 4: Leaving Cincinnati (and Other Ohio Cities)
- Part 5: Willisms Looks at State Migration Patterns