* Positives outweigh the negatives for many rich folk
* California just offers 'too much for too many'
By Jim Christie and Peter Henderson
SAN FRANCISCO, Nov 18 Warnings that a new
millionaires' tax would send California's wealthy stampeding for
the state line began before the results were final. But the
super-rich may well stand their ground.
"Anyone know a good realtor in Incline Village?" Aaron
McLear, the spokesman for California's anti-tax campaign,
tweeted early the morning of Nov. 7 as the votes against his
cause streamed in. Nevada's Incline Village shares mountain Lake
Tahoe with California, and has no income tax.
California's vote raised its top rate by 3 percentage points
to 13.3 percent, easily the highest in the nation, drawing howls
of protests from critics who doubt the taxes will be well spent
and who fear a Democratic supermajority will wreak further
havoc. "At least Californians can still escape to Nevada or
Idaho," a Wall Street Journal editorial concluded.
It's too early to look for signs of an exodus. But if
history in California and New Jersey, another state with high
taxes and its share of multi-millionaires, is any guide their
won't be a run for the exits.
At high-end Incline Village real estate broker Chase
International, a short hop from San Francisco into Nevada, the
phones have not been ringing off the hooks, said realtor Shari
Some wealthy retirees and mobile professionals called before
the election, she noted, and nearby business owners in
California expressed interest in a move. But Silicon Valley
executives will not be trying to telecommute from her side of
Lake Tahoe, she said.
"We do have billionaires here," said Chase. "But I'm not
sure the 3 percent (state tax increase) is going to make as big
a difference for them."
Governor Jerry Brown's seven-year income tax hike, known as
Proposition 30, looked poised for failure before Election Day,
but it sailed through by a vote of 54.5 to 45.5 percent.
Brown promoted it as a temporary fix to the state's big
fiscal gap, which gave California time to make bigger changes
and save schools and universities from $6 billion in cuts.
Business groups from the Beverly Hills Chamber of Commerce
to the tech industry policy group TechNet backed the tax, and
the state Chamber of Commerce took no position.
A few defections are likely, said Jim Wunderman, president
of the Bay Area Council business group, but many can't and
won't. "California offers too much to too many," he said.
Using tax funds for education scored with the wealthy. The
state's higher education system "is a large reason why we are
the world's technology leader," venture capitalist and former
state controller Steve Westly, a Democrat, wrote in an email.
"No. I don't think high-income earners will leave the
state," he added.
Business has been good in Silicon Valley, and venture
capital investment is pouring in, something even tax opponents
could appreciate, said TechNet Senior Vice President Jim Hawley.
"I don't think Prop 30 itself was going to push anybody over
the edge," he said. "People look at the business climate in
LOW-TAX TEXAS BECKONS
"We've decided to put the pedal to the metal and get out of
California as soon as possible," one Southern California
businessman told Reuters.
He has not told his clients yet, and declined to be named.
He and his wife decided after the election to sell their house
at a loss, sell his advertising business and head to Texas.
The Lone Star State does not have an income tax and has
clinched the No. 1 spot on Chief Executive magazine's list of
best states for business for eight consecutive years.
California politician Chuck DeVore abandoned California for
Texas after he lost the Republican primary for the U.S. Senate.
Entrepreneurs frustrated by business conditions - California
perennially ranks dead last in polls of business friendliness -
are sure to respond to the tax, he said.
"They may see this as the last straw," DeVore said.
A September 2012 Stanford Center on Poverty and Inequality
which looked at state tax records found the contrary.
In fact, more millionaires came to the state than left after
California's so-called Millionaire's Tax was introduced in 2005
- adding 1 percentage point of tax to incomes over $1 million. A
1996 cut to taxes for those earning $110,000 and up did not spur
migration into the state, either.
The number of millionaires has risen or fallen by about
10,000 a year, but that change has been almost entirely due to
the state economy, not wealthy people coming into or leaving the
state. Such migration accounted for about 47 people, net, on
The very richest, who were likely to have houses and
properties in many parts of the world with creative means to
finesse their taxes, were the least likely to move after the tax
hike, but even those at the bottom end of the millionaires scale
did not pick up and leave, according to the September study.
The Stanford researchers found New Jersey millionaires also
stayed put, despite plenty of nearby, relatively inexpensive
alternatives, after the state hiked its top rate by 2.6
percentage points. There was a modest increase in migration
among millionaires past retirement age and living mostly on
investment income, they found.
A Manhattan Institute study published in September in the
buildup to the tax vote, warned California's golden age of
domestic migration was over, as jobs proved harder to come by,
crowding increased and government cut services while increasing
taxes. Immigration from abroad wasn't considered.
But former New York state chief demographer Robert
Scardamalia, one of the co-authors of the Manhattan Institute
report, pointed out that the U.S. census and Internal Revenue
Service data he used did not get at the "why" for migration.
"Bottom line is that I think they find what many would
expect - there are a lot of other reasons driving the migration
decision other than taxes," he concluded in an email to Reuters.
IF YOU GO, SEVER TIES
Many find it hard to leave the good weather and vibrant
cities of California, which offer an especially pleasant life
for those of means. Tax authorities make it even harder.
Back in Incline Village, Chase has some advice for folks
considering switching residency: don't fool around.
"You can't live in a $10 million house in California and
come up to Nevada and buy a million dollar house and call that a
residence," she said.
California tax men and women go to great lengths to nail
"former" residents who have not really left. So the rich who
leave California should not plan on coming back any time soon,
said Scott Kauffman, a tax lawyer in Irvine, California.
"They're extremely thorough," he said. "They're going to
check your bank accounts, where you're charging purchases and
your cell phone records," he added.
"What I tell people is to prepare to leave for two years,"
said Kauffman. "You've got to sever all your California