Thanks to California’s new state income tax, there are a lot of high earning citizens who are considering moving to a new state. One such citizen is Phil Mickelson, a top-ranked golfer. This week he suggested that the new state taxes may force him to move out of the state. Later Phil Mickelson went on to say that he shouldn’t have spoken out as he did but there are others who are saying the same thing.
Leader Phil Mickelson teeing off on the 18th hole at TPC at Sawgrass during the final round of the 2007 Players Championship. Mickelson bogeyed the hole but still won the title by two shots. (Photo credit: Wikipedia)
Many of those who will be taxed feel as though it will be excessive. They are also feeling that California is slowly becoming unfriendly to businesses. This is seemingly something that has been going on for quite a while and thus they are starting to think that there will be no end to it. In fact, some of them have even said that this can be traced as far back as Proposition 30, saying this is what changed everyone’s mindset.
Most of the wealthy businessmen who are thinking of relocating are merely thinking and talking about it right now. However, tax analysts expect that they will see the occurrence by 2014. It will take the wealthy this long to figure out how to relocate to avoid paying state taxes without actually moving out of the state. Some of these people are thinking of moving to Texas where the personal income-tax rate is zero, whereas it’s 13.3% in California. Of course, this is just one of the many states to which they may relocate as there are others who also don’t charge individual taxes.
President Obama seems to be boasting that families coming under the middle-class category will not be paying more than $2000 extra as taxes during the year. This is correct for taxes on income; however, the President fails to mention, that there is allowance in the deal for the cut on payroll taxes to expire. More taxes will be paid this year by 77% taxpayers, which is almost $1200 extra by those who earn $75,000 to $100,000, and this income range falls into the middle class, as defined by Obama.
English: United States President Barack Obama signs into law the American Recovery and Reinvestment Act of 2009 as Vice President Joe Biden looks on. (Photo credit: Wikipedia)
President Obama says the deal is going to reduce the deficit. However, there is going to be an increase in deficit by around $4 trillion during the next decade, as there are extensions to the tax cuts provided by the Bush administration, which comprises of one percent top taxpayers. There will be a “deficit reduction” by the deal, only in comparison to a situation, if the Bush cut on taxes were extended to everybody.
All the talk by President Obama of preserving tax cuts for the middle class in the deal to prevent the fiscal cliff seems to create the impression of people paying same amount in taxes for the year, except people who are wealthy. However, that is quite incorrect. Obama has left out in his analysis that temporary reduction of couple years payroll taxes of Social Security has been permitted to expire. This will result in many people paying more taxes in the year.
If lawmakers see Social Security as just one of the line items in the federal budget, there is not much to stop it from being caught up in an orgy of spending reductions.
When an economic agreement was reached in Congress recently which extended unemployment insurance, the Social Security payroll tax cut and retained present levels of reimbursement for doctors who accept Medicare, the response by many was a resounding “Hurrah.”
The perception was that Congress finally did something important with less posturing and brinkmanship and not quite as close to the deadline as usual. Although the infant recovery of the national economy was saved from a threat, what they actually did was avoid the issues until they are safely beyond the presidential election–at the end of the year.
It may not be a good thing because every time Congress extends the payroll tax cut since 2010, restoring it to 6.2% is pushed further away, which is not good for Social Security.
So far it has not hurt the program because 100% of the cut must be covered by the general fund which has so far amounted to $130 billion. The newest cut will require a transfer of about $94 billion more.
But tampering with funding for Social Security is playing with fire. Sen. Tom Harkin (D-Iowa) stated he never thought he would see a Democratic president putting Social Security in jeopardy.
Because of continued cuts, restoring the old payroll tax cut would mean a nearly 50% increase and may be seen as a tax hike on working people, although it is restoration of a temporary cut.