California’s Rich May Leave to Avoid $12 Billion in SALT Tax Hit

President Donald Trump’s new tax cut, which limiting state and local tax deductions, will cost rich Californians $12 billion more in federal taxes, with $9 billion coming from those making $1 million or more.

Recently, the California Department of Finance reported good news for Sacramento politicians: thanks largely to having the top state income tax bracket in the nation at 13.3 percent, California collected about $3.3 billion more in state taxes than forecast in the first three months of 2018, with 67 percent coming from higher than expected personal income taxes.

But the California Franchise Tax Board also warned that the Trump tax cut, which limits state and local tax (SALT) deductions to a maximum of $10,000, will cost same high income earners $12 billion a year more in federal tax.

The bigger tax bite could also be strong motivation for California’s highest income earners to vote with their feet and leave California to save big bucks in a low tax state.

Maine is second to California with a top income tax rate of 10.15 percent, followed by Oregon’s 9.9 percent. But Nevada, Washington, Texas and Florida have no state income tax.

Only about 61,000 households, or 0.4 percent, of the 16 million households in California reported an income of more than $1 million in 2014. But the CalMatters blog commented that of the 40 million residents in California, the top 150,000 that are in the  top 1 percent of income earners pay about half of all state income taxes.

California taxpayers may already be voting with their feet, according to an analysis by CNBC. The business news team found that from 2016 to 2017, California saw a net 138,000 people leave the state, while Texas grew by 79,000 people, Arizona added 63,000 residents, and Nevada saw a 38,000 gain.

The Republican Governors’ Association was quick to observe: “California Democrats imposing massive tax hikes on middle-class families, driving up their state’s cost of living, residents are packing their bags and leaving for states run by GOP governors like Arizona, Nevada, and Texas with lower tax burdens and friendlier business climates.”