Working Paper: NBER ID: w26349
Authors: Joshua Rauh; Ryan J. Shyu
Abstract: Using administrative income tax data, we analyze the response to Proposition 30, a 2012 ballot measure that increased California marginal tax rates by up to 3 percentage points for high-income households. Relative to baseline rates of departure for their income levels, an additional 0.8% of the residential tax base that landed in the top bracket left California in 2013. Using matched out-of-state taxpayers as controls reveals an income elasticity with respect to the marginal net-of-tax rate of 2.5-3.2 for high-earners who stayed. These responses together eroded 45.2% of state windfall tax revenues within the first year and 60.9% within two years, with the extensive margin accounting for 9.5% of this total.\n
Keywords: Income Taxation; High Earners; California Proposition 30; Tax Revenue; Taxpayer Mobility
JEL Codes: H24; H31; H71; H73; J22; J61; R23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Proposition 30 (H79) | departure rate of high-income taxpayers (H24) |
| departure rate of high-income taxpayers (H24) | loss of expected windfall tax revenues (H27) |
| Proposition 30 (H79) | taxpayer migration (H73) |
| taxpayer migration (H73) | changes in reported income (E25) |
| marginal net-of-tax rate (H29) | income elasticity of taxable income (H30) |