Updated 8:23 pm, Wednesday, January 23, 2013
Has California gone too far in taxing millionaires?
Golfer Phil Mickelson ignited the question Sunday when he said he was considering "drastic changes" in response to a big jump in his federal and state tax rates. Asked if that could include moving out of California, he said, "I'm not sure."
Proposition 30, which voters approved in November, raised the state income tax rate on income over $1 million to 13.3 percent, from 10.3 percent, retroactive to Jan. 1, 2012.
Mickelson, who lives in Rancho Santa Fe near San Diego, earned $4.2 million on the course last year. Sports Illustrated estimated he also made $57 million in endorsements, which his spokesman would not confirm.
Mickelson apologized on Tuesday for making his opinions public. In a news conference Wednesday, he said he hadn't decided whether to move out of state, "but whatever community I live in, whether it's here or somewhere else, what have you, I want to be involved in that community."
His comments come at a time when California is raking in record-breaking personal income tax revenue.
The Franchise Tax Board took in $2.2 billion on Jan. 16, shattering its previous one-day record of $1.35 billion on June 18, 2012. It brought in $1.36 billion on Jan. 17, which now ranks No. 2.
Most of that money came from people making their final estimated tax payment for 2012, which was due Jan. 15.
The Legislative Analyst's Office now expects January tax receipts will be $4 billion higher than its previous estimate.
It's not clear how much of that windfall, if any, is coming from millionaires who paid their additional tax due under Prop. 30 with their final estimated tax payment, rather than waiting until April 15. Normally, people who don't prepay enough tax - through payroll withholding or estimated tax payments - are hit with an underpayment penalty. But the penalty won't apply to Prop. 30 taxes because the law was retroactive, and wealthy people are not known for paying taxes any earlier that necessary.
Jason Sisney, the deputy legislative analyst, says the unexpected tax revenue is probably a result of three factors:
-- Wages and capital gains were higher than expected in 2012, which could be partly a result of more Facebook insiders selling stock than anticipated.
-- Higher-income people, worried about a potential increase in the federal capital gains rate in 2013, sold stock near the end of the year to lock in last year's rate.
-- Some millionaires prepaid their Prop. 30 tax bill.
Whether or not you think Mickelson is paying too much tax (he claimed that he will pay 62 or 63 percent in federal, state and payroll taxes combined, but several tax experts say his effective rate can't be more than about 52 percent), there's no question that California relies heavily on its richest citizens.
In 2010, the top 5 percent of earners paid 62.2 percent of the state personal income tax, according to David Kline, a spokesman for the California Taxpayers Association. And that dependence is only going to be greater with Prop. 30.
The analyst's office estimated that Prop. 30 will generate an average of $5 billion a year in additional income tax revenue over the next five years.
If people like Mickelson retire, work less or move to states with no or low state income taxes, some of that revenue won't materialize. Tiger Woods said Tuesday that he moved from California to Florida in 1996 for tax reasons. Florida has no state income tax.
Sisney says the analyst's estimate did not incorporate any loss of revenue due to people moving out of state or changing their behavior. There is no academic research that proves people flee states in response to tax increases, he says, but that doesn't mean it won't happen this time. "It's something we definitely will have to be watching out for."
Kline says there is a real risk that a tax increase the magnitude of Prop. 30 could cause millionaires to leave the state.
"When you have a choice of whether to live in California and pay 13.3 percent of your income to the state or move to Florida - which also has great climate, beaches, golf courses - and keep all that money for your family or give it to your favorite charity, it's a no-brainer for a lot of people."
William McBride, chief economist with the Tax Foundation, agrees. "It's a real concern. The ones who are most able to move are the ones with the most money." He points out that French actor Gerard Depardieu became a Russian citizen after France proposed raising its top tax rate to 75 percent, and Facebook co-founder Eduardo Saverin moved to Singapore to escape capital gains tax.
But Bob McIntyre, director of Citizens for Tax Justice, says that vast wealth makes it just as easy to stay put. "It's one of the joys of being rich. You can live wherever you want," he said.
Kim Rueben, a senior fellow with the Tax Policy Center, agrees that at some point, higher taxes will cause people to move out of state, but questions whether three percentage points "is really the tipping point. Taxes can play a role, but in general, people are making decisions about where to work and live based on a whole host of characteristics. I don't think we will see a mass exodus" from California.
T.R. Reinman, a spokesman for Mickelson, pointed out that "Phil's parents are here, (his wife) Amy's parents are here," and his children, ages 9, 11 and 13, are in schools in Rancho Santa Fe.
Even if Mickelson moved out of state, he would still owe California income tax on any prize money he earns in the state.
Reinman confirmed that Mickelson's home in Rancho Santa Fe is not for sale. Another home he owns in Rancho Santa Fe has been on the market about a year.
Kathleen Pender is a San Francisco Chronicle columnist. Net Worth runs Tuesdays, Thursdays and Sundays. E-mail: email@example.com Blog: www.sfgate.com/networth Twitter: @kathpender
San Francisco Chronicle: Phil Mickelson comments spark tax debate