Joshua Rah, an economist at Stanford University and a senior fellow at the Hoover Institution, co-authored a landmark study on the revenue impact of a large increase in the marginal tax rate in California. In 2012, Californians voted to increase the top marginal tax rate from a then-high 9.3 percent to 10.3 percent to 12.3 percent. Add a pre-existing 1-percentage-point surtax on people making more than $1 million a year, and you get rates ranging from 10.3 percent to 13.3 percent.
Rauh and co-author Ryan Shue of Stanford’s Graduate School of Business found that 55.6 percent of the additional revenue state governments would have raised if high-income earners continued to do business as usual was lost in the first three years. of taxes. This was due to people leaving the state and higher income “stayers” earning less than otherwise responding to higher tax rates. The effects were even larger in the three years the economists studied. This makes sense because the more effective the tax, the longer people had to adjust.
California’s Laffer Curve is alive and well. Which can be said more for California.
These are David R. Concluding paragraph of Henderson, “California’s Laffer Curve,” IPI Taxbytes, 25 Oct. 2022. Read the whole thing, which is not long