Opinion: James Doti and Art Laffer: California’s lost adjusted gross income
California’s budget deficit has swelled since last January by $9.3 billion to a daunting $31.5 billion. In soft-peddling the state’s current fiscal woes, Gov. Gavin Newsom said, “A progressive tax system allows us to stack away billions and billions of dollars for exactly this moment.” He seemed pleased to point out that at least one-half of the revenue the state government relies on comes from just 1% of the population.
What Newsom doesn’t appear to see is the deleterious long-term effects of a highly progressive tax system. Case in point: The “one-percenters” who pay 50% of the tax are voting with their feet by leaving California in droves. What should be even more alarming to Newsom and his fellow Democrats, who have commanding control of the Legislature, is that these losses in AGI are cumulative. That is, the net outflow of AGI in 2018 of $5.7 billion continues into 2019 and beyond. So, too, do subsequent losses in AGI. The net AGI out-migration, once gone, doesn’t come back. No one swims back to Alcatraz.
Although those who have AGIs above $200,000 pay the bulk of the California income tax, it is telling that all of the other classes of AGIs under the $200,000 threshold also experienced net losses in AGI. As a result, the aggregate net outflow from all classes of AGI increased from $17.6 billion in 2018 to $22.6 billion in 2019, to $23.5 billion in 2020, and to $29.6 billion in 2021. Those losses between 2018 and 2021 represent a cumulative decline in California’s AGI of $215 billion.
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