Will millionaires avoid Prop. 30 tax increase?

Analysis

Nov. 28, 2012

By John Seiler

During the recent campaign, Gov. Jerry Brown insisted that people would not try to avoid his Proposition 30 tax increase by halting investments and “hiding” their money. Prop 30 boosts the top state income tax rate on millionaires to 13.3 percent from 10.3 percent.

Warren Buffett just wrote the same thing in a New York Times op-ed, insisting that the wealthy don’t react when their taxes go up. “So let’s forget about the rich and ultrarich going on strike and stuffing their ample funds under their mattresses if — gasp — capital gains rates and ordinary income rates are increased,” he wrote. “The ultrarich, including me, will forever pursue investment opportunities.”

The evidence, including Buffett’s own investment history, indicate otherwise.

The London Telegraph reported yesterday:

“In the 2009-10 tax year, more than 16,000 people declared an annual income of more than £1 million to HM Revenue and Customs.

“This number fell to just 6,000 after [Labour Party Prime Minister] Gordon Brown introduced the new 50p [percent] top rate of income tax shortly before the last general election.

“The figures have been seized upon by the Conservatives [who run the current government] to claim that increasing the highest rate of tax actually led to a loss in revenues for the Government.

“It is believed that rich Britons moved abroad or took steps to avoid paying the new levy by reducing their taxable incomes.

“George Osborne, the [Conservative] Chancellor, announced in the Budget earlier this year that the 50p [percent] top rate will be reduced to 45p [percent] from next April.”

In September, France increased its top tax rate to 75 percent. CNBC reported:

“Two months after Bernard Arnault’s bid for Belgian citizenship shocked France, another major cultural figure has crossed the border in a quest for lower taxes.

“Indeed, according to Belgian newspaper Le Soir, French superstar actor, Gerard Depardieu, has recently bought a mansion in the southern Belgium’s francophone region. His new home is in the town of Nechin, located just about a mile from the border, where French expats notoriously make up 27 percent of the local population.

“The move could allow the quintessentially French actor to escape the tax increases put up by the recently elected Socialist government in France.

“Indeed, the budget unveiled in September by French President Francois Hollande included one of his most controversial campaign promises: a 75 percent tax for incomes over 1 million euros ($1.27 million).”

Aside from Brigette Bardot, Depardieu is the only French actor most modern Americans recognize. It’s a kind of a real-life sequel to his movie “Green Card.” For him to leave is a blow against French chauvinism.

Buffett avoided taxes

As to Buffett, the Weekly Standard reported, based on a new biography of him by Alice Schroeder:

“Early in his career, Buffett invested heavily—almost one third of his early fund’s capital—in Sanborn Map, a company that mapped utility lines and such. But he soon grew frustrated with the company’s leadership, which ‘operated more like a club than a business,’ and which refused to return greater dividends to investors. So Buffett amassed more and more stock, and with control of the company finally in hand he pressed the board of directors to split the company in two (one for the mapping business, and one to hold the company’s other outsized investments).  

“Finally, the board capitulated. But with victory finally at hand, Buffett nearly scuttled the deal because of … taxes. As Schroeder recounts, quoting Buffett, one director proposed that the company just cleanly break the company, despite the tax consequences—”let’s just swallow the tax,” he suggested. 

“To which Buffett replied (as he recounted to Schroeder):

” ‘And I said, “Wait a minute. Let’s — ‘Let’s’ is a contraction. It means ‘let us.’ But who is this us?  If everyone around the table wants to do it per capita, that’s fine, but if you want to do it in a ratio of shares owned, and you get ten shares’ worth of tax and I get twenty-four thousand shares’ worth, forget it.”

“Buffett was willing to walk away from a deal because the taxes would have taken too much of a bite out of it. Fortunately for him, the board gave in and allowed him to structure the deal that he liked, saving him from his own [Grover] Norquistian response.

“That’s not the only time that taxes played a major role on Buffett’s decisions, as recounted by Schroeder. Later in the book (pp. 533-534), she recounts how Buffett chose to structure his investments under Berkshire Hathaway’s corporate umbrella, rather than as part of his hedge fund’s general portfolio, precisely because of the tax advantages.”

Et tu, Warren?

California’s case

As to California, during the Prop. 30 campaign, Brown touted a study by two Stanford professors that supposedly showed millionaires wouldn’t leave the state if their taxes were jacked up. At CalWatchdog.com, I debunked that study.

California soon is going to find out the hard way that, yes, the rich do avoid tax increases. In addition to $1 billion in tax increases on sales taxes that hit everybody, Prop. 30’s income tax increases are expected to bring in at least $5 billion.

By the middle of 2013, we’ll see if millionaires reply, as Brown and Buffett insist, “Thank you, sir, may I have another!” Or whether, like Buffett himself, and like recent French and English emigre millionaires, California’s wealthy folks find ways to avoid the latest looting.

 

33 comments

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  1. Sean Morham
    Sean Morham 28 November, 2012, 10:36

    I am more concerned about the uncertainity of increased taxes in the future, and I am referring to Cal.
    We have stopped plans(after the past election) to buy a new refrigerator(original works), a new TV(old one is poor but it works), another tablet for the household;also scaling back on Christmas gifts. I will look into used TV’s as an alternative and see if a good deal can be had: no tax to state. Donate old one..write off on taxes.
    Also, home investment is limited to projects to enhance sales appeal.
    That may be some time off, but get the house ready to move fast.
    Another two people with Masters degrees, out of here. California is a lost cause.

    Reply this comment
  2. Ted Steele, Navigator
    Ted Steele, Navigator 28 November, 2012, 10:43

    Sean– Based on recent consumer figures from Black Friday and cyber Monday ™, I don’t think other Californians share your so called “uncertainty” ™.

    But if you leave Calif., we’ll miss ya! Where will you go do you think? With two Masters degrees, if you’re willing to go back to college for a year or so, you guys might score a teachers job somewhere? Not too shaby!!!

    Reply this comment
  3. Rex the Wonder Dog!
    Rex the Wonder Dog! 28 November, 2012, 12:20

    The fact is the ones getting hit with the tax the most, those who are ate $100K-$250K- are the one who will not be able to avoid it, it is NOT a millionaires tax.

    Sean, ignore Teddy (and his gimmick accounts), as he was an abused and abandoned child and cannot help it 😉

    Reply this comment
  4. Sean Morham
    Sean Morham 28 November, 2012, 12:56

    Spouse is a teacher…got into rather late, so it is not as lucrative as for some. Leaving would TBD…where kids end up…
    Paradigms are being brokem…Brown thinks Cal is Cal, we will grow out of this. I was in Michigan in 80’s. They thought the same thing..look what happened.

    Reply this comment
  5. Douglas
    Douglas 28 November, 2012, 13:20

    Ted: that was my wife. Shoppers say they plan on spending an average $854 this year that’s up 32% from last year ($646).

    My wife passed $854 long ago. She’s still spurring the economy. And Jerry gets 7.5% of every penny she spends.

    Reply this comment
  6. Ted Steele, Navigator
    Ted Steele, Navigator 28 November, 2012, 13:45

    God Bless her Douglas— she must know my wife!

    Reply this comment
  7. Ted Steele, Navigator
    Ted Steele, Navigator 28 November, 2012, 13:46

    Sean– Ride it out here amigo— things are not as gloomy as the regulars out here make it out to be—

    Reply this comment
  8. BobA
    BobA 28 November, 2012, 14:40

    Sean:

    I was fortunate enough to retire 4 years ago at age 53 and I’ve been preparing to leave Cali since 2010. The only ties I have to Cali is my home (which I own free and clear) and family. Prop 30 doesn’t affect me per se but if and when the state gets around to singling out investment income for tax increases, I’ll sell my house and take up residence elsewhere before the ink is dry on the legislation. My wife and I have already planned for that scenario. She still works but my income is more than enough for the both of us.

    Arizona or Texas is my destinations of choice but I’m also considering Canada or New Zealand in case things go from bad to worse here in the USSA (United Socialist States of America.)

    Reply this comment
  9. SeeSaw
    SeeSaw 28 November, 2012, 15:44

    Sean, that $1000 refrigerator would set you back an extra $2.50–if you can’t afford that, maybe you do need to move. Everyone should live where they can be happy though–hope you find what you are looking for.

    Reply this comment
  10. SeeSaw
    SeeSaw 28 November, 2012, 15:50

    BobA, My son-in-law is a social researcher who does a lot of work in Scandanavia. He says that the citizens in those countries are a lot happier than we are here, in the U.S. Don’t worry, though–if one doesn’t love the U.S. enough to take it as it is, you probably need to find your happiness somewhere else, too. Canada has socialized medicine, you know. I’d love to get some feedback from those of you are are planning to leave CA. Let us know how it is for you when you finally make that move–you might have to go into rehab to get over the need to complain about everything that is CA.

    Reply this comment
  11. Rex the Wonder Dog!
    Rex the Wonder Dog! 28 November, 2012, 16:04

    seesaw the world traveler and philosopher, awesome 🙂

    Reply this comment
  12. Barb
    Barb 28 November, 2012, 16:40

    Smart move Sean! There’s a reason why it costs twice as much now to rent a UHaul out of CA than to move in!

    Reply this comment
  13. Hondo
    Hondo 28 November, 2012, 18:07

    The problem is not the millionaires leaving the state with their investment income. Many will, but many have family roots here. The bigger problem is the millionaires NOT coming to Kali. And the biggest problem is the investment money not coming here. Investment money follows low taxes and good business climates.
    Hondo….

    Reply this comment
  14. SeeSaw
    SeeSaw 28 November, 2012, 19:58

    I have never been out of the US, Rex. I am just stating what I have been told by someone who has.

    Reply this comment
  15. NTHEOC
    NTHEOC 28 November, 2012, 20:24

    These hog millionaires are always looking to hide assets from taxation or for other reasons have always looked abroad,Nothing new!! Switzerland used to offer a high level of secrecy in its banks, but that has changed. Other countries, like Lichtenstein, have taken on that role. For American hog millionaires I think they like the Cayman Islands or Bermuda as places to shift assets. So like these crooks always do,they likely will find ways to shift the timing and composition of their income in order to avoid paying taxes.

    Reply this comment
  16. MikeL
    MikeL 29 November, 2012, 05:37

    I find it amusing that lefties tend to denigrate successful people by calling then names. Are all American millionaires Hogs? Is Al Gore a hog? How about Nancy Pelosi or Barbra Boxer? I see that you think millionaires are criminals also. I really think that NTHEOC should look into all of the retired public sector union people who are on the dole who move out of the State taking their Bernie Madoft like pensions with them. I think it is criminal that the State has lied to so many public sector people telling them that their promised pension and medical benefits will be paid. The chickens of reality are very soon going to come home to roust…look at Stockton and San Bernidino.

    Reply this comment
  17. Ted
    Ted "Eddy Baby" Steele, Associate Prof. 29 November, 2012, 06:51

    MikeL–

    I don’t think NTHEOC is referring to ALL millionaires. I think he only means the dirtbags who offshore their dough, whine about taxes and hide their assets etc. I think he’s right about that and probably most American patriots would agree.

    Reply this comment
  18. BobA
    BobA 29 November, 2012, 07:10

    SeeSaw:

    I’ve traveled the world several times throughout the course of my career and have been in countries where none but the bravest would ever go. Trust me when I say that there is no place on earth like America.

    I love my country, I love my fellow citizens and I wouldn’t trade our Constitution and system of government for any other system of government on planet earth. What I don’t like is what our politicians are doing to our country and the direction they are steering the country in. They are trying to turn America into something it was never intended to be or meant to be. Something that has been tried & failed many times over elsewhere on the planet.

    Our government is slowly assuming more and more control of every aspect of our lives. What most people don’t realize or fail to consider is that in turning over the control of our lives to the government, we must give up more of our freedoms in return. Once the government has full control, you will obey its dictates or be punished otherwise. That is not what it means to be free.

    Forcing you to by health care insurance and telling you what you can and can not eat is just the beginning of the government asserting control over every aspect of our lives. How long do you think it will be before they start telling you what you can buy, where you can work, how much you will be paid, how to raise your children, what kind of car you can drive, how much electricity you can use, what you can watch on TV and how much of anything you’re allowed to have?

    We’re already seeing the beginnings of the things I’ve cited above and that will not be the end of it. I want no part of it and if my fellow Americans are going to lay down and just accept it without a fight then it’s easier and better for me to pack my bags and get the hell out while I’m still free to leave.

    Reply this comment
  19. Douglas
    Douglas 29 November, 2012, 07:55

    It’s all a matter of degrees, I suppose. As the world gets more populous and interconnected, more rules, cooperation, and compromise are necessary. If you live in open space in Montana, you can drive your UTE, or horse, wherever you like. On Hwy 99 you have to stay to the right of the center line.

    In the Nevada desert, you can whiz anywhere. Downtown Sacramento, we need a sanitary sewer system and building and health codes to keep us from contaminating our neighbors stream, like it or not. And we all have to share in the cost.

    Ninety percent of Americans live in urban areas. There will be rules.

    Reply this comment
  20. Douglas
    Douglas 29 November, 2012, 07:56

    And there will be taxes.

    Reply this comment
  21. Rex the Wonder Dog!
    Rex the Wonder Dog! 29 November, 2012, 08:27

    And there will still be troughers trying to stick their hand in your pocket to steal your money with excessive taxes to fund $10 million pensions at age 50 for GED educated gov troughers 😉

    Reply this comment
  22. Sean Morham
    Sean Morham 29 November, 2012, 08:50

    Barack Obama “Voting is the best Revenge.”
    Not for me: Not spending in “Brown, Steinberg, Perez California” is my best revenge. Just holding onto the purse strings tighter than in the past, what I learned from Mom and Dad, who grew up in the 1930’s.
    Could care less about $2.50 in additional sales tax, but certainly don t want to give to the state to waste. I can save it, not a miserly act, but to exercise my freedom of choice.

    Reply this comment
  23. Ted Steele, Navigator
    Ted Steele, Navigator 29 November, 2012, 09:04

    Saving is wise Sean— AND paying off your home early! That’s how I retired– A lot of these whiners out here NEVER did any of it. They bought new cars every year, spent, enjoyed and now the winter’s here and guess what? No acorns! Sad but true! Watch who responds to this—-LOL—– HUGE whines!!!!!!!!!!!!!!!!!!!!!!!!!!!!

    Reply this comment
  24. SeeSaw
    SeeSaw 29 November, 2012, 09:28

    BobA, you make your debate without hurling personal insults at the person you are addressing. I respect that.

    Reply this comment
  25. Luke
    Luke 29 November, 2012, 09:41

    Depardieu and Bardot are the only French actors Americans recognize? What is it 1993?

    Reply this comment
  26. CalWatchdog
    CalWatchdog Author 29 November, 2012, 09:45

    Luke: Which other French actors might Americans recognize? Names, please.

    — John Seiler

    Reply this comment
  27. Ted Steele, Navigator
    Ted Steele, Navigator 29 November, 2012, 09:48

    Well Yves Montand and Michael Picolli are worthy of at least a mention.

    Reply this comment
  28. SeeSaw
    SeeSaw 29 November, 2012, 10:46

    Catherine Danueve. (Probably mispelled.)

    Reply this comment
  29. DavidfromLosGatos
    DavidfromLosGatos 29 November, 2012, 16:28

    It takes time for people to relocate their professional and personal lives permanently out of California (and watch out for the FTB if it is only temporary …). I’m not talking about the “idle rich,” whoever that is, but people with busy professional and family lives.

    In our case, it helps that our kids are grown, and my wife is happy to early “retire” from the work force. But, it will still take at least a year to get my business moved to a new state (new professional licenses, office space, getting clients comfortable with the change, shedding CA employees, hiring new employees, etc.). CA will get at least two years (2012 and 2013) and maybe half of 2014 out of us before we are gone.

    IMO, it will be a few years before there is any noticeable impact on CA state tax collections as a result of Prop 30, although I agree with above posts regarding the more immediate impact with respect to those that do not move to, or establish themselves in, California in the first place.

    I also agree that, while the .25% sales tax increase is nothing, I am going out of my way to avoid making any big purchases during my remaining CA time. Just my own tiny, insignificant way of saying FU back to Jerry Brown. A couple of new cars are sorely needed and easily affordable in my household, but we will wait and buy in our new state – which also has high sales tax rate, but is not tacking on an additional 13.3 percent income tax on the same earned-through-working dollars used to buy the cars.

    No worries, Ted, we won’t let the CA state door slam against our asses on the way out of town.

    Reply this comment
  30. Rex the Wonder Dog!
    Rex the Wonder Dog! 29 November, 2012, 17:36

    That’s how I retired– A lot of these whiners out here NEVER did any of it. They bought new cars every year, spent, enjoyed and now the winter’s here and guess what? No acorns! Sad but true! Watch who responds to this—-LOL—– HUGE whines!!!!!!!!!!!!!!!!!!!!!!!!!!!!

    I love how this trougher tries to claim that everyone who has lost a REAL job and cannot make ends meet is because they “bought new cars every year” and a million other baloney excuses…Teddy, with your HS ed skill set you could not buy a tree house without your gov workfare job. N
    uff said.

    Reply this comment
  31. Ted
    Ted "Eddy Baby" Steele, Associate Prof. 29 November, 2012, 20:28

    Poody! I am sorry you’re such a frustrated guy. All I know Poody is that I look around and see alot of folks who spent lives NOT preparing for retirement. The keys are the keys! 401 k’s combined with investments and 6 months of liquid and social security work if your home is paid off —-BUT have no chance of working if you have a fat mortgage. I live at the beach in the same house I have been in for 30 plus years. MANY of my friends bought bigger ocean front homes when the real estate got crazy lucrative— I didn’t. They got huge new mortgages. It helped me alot to own my home. I do have a small gov pension from a bit over 10 years of gov work— it’s small but combined with everything else and owning my home it works pretty well…….I still practice my profession on the side but I can make it without it…. Sorry Poody!!!

    0 for 14 ™ !

    Reply this comment
  32. Rex the Wonder Dog!
    Rex the Wonder Dog! 30 November, 2012, 08:48

    Troffer, go BACK and re-read what your idiotic comment said…….;

    “They bought new cars every year, spent, enjoyed …”

    You said they cannot retire b/c they bought new cars every year……Now you’re changing your tune. Fact is most people can not make ends meet as the MEDIAN salary in the state is $29K, about $20K AFTER taxes and FICA withholding. That does not allow a 401K or any other way to save, in fact at least 74% of $20K would go to housing alone, if you could even find an APARTMENT for $1K a month.

    Like I said- good thing you had your gov workfare.

    Reply this comment
  33. Ted
    Ted "Eddy Baby" Steele, Associate Prof. 1 December, 2012, 08:00

    Poor Poodle— He has about zero reading comp.!!!

    and he remains 0 for 14 ™ !

    Reply this comment

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