Posted on 07/31/2007 3:28:27 PM PDT by bruinbirdman
The median sales price for the American dream--new house, land included--is $236,000, according to government census figures. The average price--$313,000--is higher than the median. Many new houses are palatial.
In Manhattan you can pay nearly the U.S. median new home price for a parking spot. "In Chelsea," wrote the New York Times last month, "eight people are vying to buy one of five parking spaces for $225,000 in a 34-unit condo building on West 17th Street. That translates into $1,500 per square foot." And, no, you don't really own the land.
Here's a Blue State irony: In areas where U.S. real estate costs are highest--Manhattan or the tonier parts of Boston, Washington, D.C., San Diego, Los Angeles, the San Francisco Bay Area and Hawaii--taxes are also among the highest. New York City residents face a 6.85% top state income tax and a 3.65% top city tax. High salary earners are hit with a combined 45.5% income tax rate before they start paying sales taxes and property taxes, which add 14% to the cost of living. Some taxes might be deductible, but don't get too cute. The dreaded alternative minimum tax will rise up and smite thee.
California state income tax is a gagging 9.3%, and it kicks in at a school janitor's salary of $43,500. California adds a "mental health tax" of 1% if you make more than $1 million a year--a joke on dysfunctional Hollywood, one supposes.
Is the higher house/tax overhead in the Blue States made bearable by higher salaries? Only at the very top. The average partner at Goldman Sachs (nyse: GS - news - people ) in Manhattan may pull down $20 million a year, but the average Manhattan income is only 2.0 times the national average. That's pretax. Aftertax, where it counts, Manhattan salaries are only about 1.5 times the national average. But median house prices are 4.2 times as high.
Millionaires Cash Out of California
The San Francisco Business Times noted recently that Bay Area millionaires are starting to take their gold out of the Golden State. The paper writes: "The Bay Area's wealth boom is producing an explosion of millionaires--in Nevada, Wyoming and perhaps Canada. Advisers to the well-heeled say 'wealth migration'--taking the money and running--is behind a surprising drop in the number of Bay Area millionaires."
The annual loss of millionaires from the Bay Area--home to Silicon Valley--knocks this extremely rich and fertile place down near the bottom of the new millionaire list, putting it in the company of Detroit, Pittsburgh and Cleveland. Of course, the middle class has been fleeing California for years. High house prices have been the main culprit. Long commutes and deteriorating public services play a part. But the flight of millionaires is very 21st century. The cause? You guessed it. Taxes.
Continues the San Francisco Business Times: "'I'm hearing from more California baby boomers, I need to get out,' said Diane Kennedy, a Phoenix accountant and financial adviser to the wealthy. 'You can still make a lot of money in California. The problem is, then you have to pay taxes on that money,' said Kennedy, who recently helped a California client with annual income of about $1 million save $96,000 annually by making his home in Jackson Hole, Wyo. his primary residence.
"'Effectively, you have the state of California subsidizing his relocation through the tax savings,' Kennedy said."
I love this story. Not because of what's happening to California. But because it proves that tax rates do indeed influence behavior.
Some of the outgoing California millionaires of recent years include Netscape's founder, Jim Clark, who moved to Florida, and Ebay's Pierre Omidyar, who moved to Nevada. More common among Cal expats are small business owners like Dave Barton, asset millionaires trying to live well on middle-class salaries. I wrote about Dave's move from San Jose to State College, Pa. (nicknamed Happy Valley) in my 2004 book, Life 2.0. Dave shut down his machine tooling shop and now designs tooling configuration software. We caught up on my Forbes.com blog last month.
Wrote Dave: "There's a lot I don't miss about Silicon Valley and California. It was not a pro-business climate, but it was uniquely pro-startup and pro-innovation. It was in the air; you could literally feel it on your skin. That can overcome a lot. Here in flyover country old money was made in low-risk, long-held real estate. They can't comprehend what a startup does and needs. And don't get me started on the politics.
"But looking at my Valley (Silicon vs. Happy) comparison, the raw brain power is here, as it is in other major research university towns, and it's coupled with incredibly low costs and a high quality of life. But the risk aversion is suffocating. What a dichotomy: Our cost structure in the boonies is so low we could handle much more risk, but there isn't the will."
Good analysis. Would you prefer low costs or an innovative culture? People pay a higher price to live in Manhattan and the Bay Area. Both teem with cultural richness, creative people, capital and confidence. But with a cheap dollar kicking everyone--janitors included--into higher tax brackets, what kinds of companies can operate there? Google (nasdaq: GOOG - news - people ) can live in Silicon Valley and Goldman Sachs in Manhattan, for now, because each company yanks in more than $1 million per employee. But what if your company's revenue-to-employee number is $500,000? $250,000?
Markets decide house prices. People decide tax rates. I have a hunch we'll see a Blue State tax revolt soon.
Hard to feel sorry for them, they Keep voting them in. This is what socialism looks like.
After the 2000 dot-bomb meltdown, California tax receipts cratered.
The CA Legislative Counsel Bureau was tasked to find out “where did the tax revenue go?!” in 2002 and later. They found that the big boost in tax revenues in 1998, 1999 and 2000 was NOT due to some systemic, broad-economy increase in revenues — the huge boost in revenues was almost entirely attributable to individual income tax receipts due to non-qualified stock option exercises. When the options plants at dot-bomb companies either blew up or went underwater, the tax receipts disappeared.
But in that three years, the Democratic legislature and Gray Davis had pumped up the spending in California, encumbering the taxpayers with spending that assumed that the stock option income tax revenues would continue. The spending hasn’t been brought under control, and actually has increased in some areas.
California, in a word, is screwed when it comes to finances and taxes.
I don’t know about “revolt”; maybe a steady seepage of people and capital.
“Would you prefer low costs or an innovative culture?”
How about both?
I didn't vote for them in CA and moved to Nevada.
Seems as though all the renters and bottom income quintile vote to confiscate from the upper quintile. Can't last forever.
yitbos
One would think , but they keep going in New York. Go figure.
It’s those uneducated janitors and his colleagues in the classrooms that hurt themselves by voting blue.
Couldn't happen to a nicer bunch
Even John Edwards warned of Capital Flight if you raised taxes too high too fast. (I bet he was proposing more ‘turning up the heat slowly on the frog’ structure though)
You’ll never convince them of that.
“...When the options plants at dot-bomb companies either blew up
or went underwater, the tax receipts disappeared.”
AND...the California state legislature continued to budget as though
those “seven fat years” were going to last forever.
I heard ONE candidate for office explain this economic trainwreck
coherently.
Of course, the voters of California decided to send Barbara Boxer back
to the US Senate instead of voting for a sane, smart fellow.
But then I guess his ties with the US military and a fairly conservative
university did help to doom his bid for election.
Here’s a link to a bio on the fellow in question:
http://en.wikipedia.org/wiki/Matt_Fong
Worse, the guy is hiding from Cali taxes and griping about Heartland (conservative) politics. He’s an idiot.
[shaking head]
Are the extremely liberal Democrats which represent most of these area proposing cuts in the Federal Income Tax Rates? NO!
And most of them serve for decades, becoming more and more insulated from "average" American concerns. Charlie Rangel from New York is the perfect example. And, as the chairman of the Ways and Means committee, he, as much as any one man on the planet, decides whether income tax rates go up, go down, or stay where they are.
Guess which way he wants tax rates to go...
And don't get me started on the Senators. For Manhattan, does Chuckie Schumer or Hillary want rates higher or lower? It's ALWAYS higher, and their higher earning constituents pay the biggest share of these taxes. Ditto for two Senators from Mass, and California.
And these Senators have their jobs FOR LIFE. How else to explain that Ted Kennedy is still in the Senate, and also Lurch. Barbara Boxer and Diane Feinstein will NEVER be voted out of office.
So the only way to live in those states and cities AND get a tax cut is to NOT live there. You have to move to a (slightly) lower tax rate state.
I'll believe there is about to be a tax revolt in the Blue States when Schumer and Kennedy and Boxer and Lurch are VOTED OUT OF OFFICE.
Until then, it's a small portion of one percent of the high income earners voting with their feet.
I continue to hope that one day (formerly conservative) New England will finally excommunicate its libs and go back to Old Yankee conservatism. Once making money honestly instead of stealing it is back in fashion, I’ll move back.
If these folks are dumb enough to vote for the Democrats, then I’m mean enough to laugh at them.
Rentor & Rent control = vote for Socialists. Ask any urban pol.
yitbos
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