THE term “tax hike” has taken on a new meaning. For some people, a tax policy they don't like means that they take a hike — even if their public outrage has to be walked back.
Phil Mickelson is but the latest example of a trend that also involves French actor Gerard Depardieu, former French President Nicolas Sarkozy and Facebook co-founder Eduardo Luiz Saverin.
Mickelson threatened to leave California over high taxes. He then apologized for being so outspoken about a combined federal, state and local tax rate that he said would take more than 60 percent of his income. Depardieu made headlines for loudly complaining about his native country's wealth grab. He and Sarkozy have threatened to live elsewhere. In the past, movie star Yul Brynner fled the U.S. over its tax policy. Denise Rich, the socialite and songwriter, offers another and more recent example.
Most tax hikes aren't taken by renouncing citizenship to boost one's fortunes. They're done by moving from a relatively high-tax state to a state with lower taxes or no personal income tax. Examples include Tiger Woods (California to Florida), Rush Limbaugh (New York to Florida) and Glenn Beck (New York to Texas).
When running back Reggie Bush came out of the University of Southern California in 2006, he said he liked the idea of getting drafted by Houston because Texas has no personal income tax. He was picked instead by New Orleans.
People really do vote with their feet, but they must have the means to relocate and the ability to live anywhere without being tied to a job that requires a daily commute. Thus, the tax ex-pats are typically wealthy and see significant savings by changing their mailing address. Government policy should always keep this in mind. Punishing success repels people. After Mickelson's complaint surfaced, fellow golfer Woods said he moved to Florida in 1996 because of California's high tax rates — which have gotten much higher since Woods fled.
Every year the Internal Revenue Service releases a list of Americans who've renounced their U.S. citizenship. In 2011, the number of Americans who renounced reached nearly 1,800, more than the combined totals for 2007, 2008 and 2009. The IRS list doesn't say why the renouncements took place, but the fact that the tax man keeps the list (as opposed to immigration officials) is instructive.
With the federal debt growing exponentially and a massive new entitlement (Obamacare) on its way, all Americans will be saddled with more expensive government and higher tax bills, no matter where they live. This is all the more reason for states to keep their share of the tax burden as low as possible.
To that end, we offer a reminder that there's a limit to how much people are willing to pay for government. For 50 years, the cost of government was 35 to 37 cents of every dollar of income. The amount went up and down from year to year but rarely strayed from the 35-37 range.
A seminal book published in 2004 by David Osborne and Peter Hutchinson makes the case that government spending should be based on what the people think they can afford. The Washington, D.C., and California models have it backward: Increase spending and then find ways to pay for it, through borrowing (Washington) or higher taxes (California). “The price Americans are willing to pay for government is relatively fixed,” Osborne and Hutchinson wrote.
Domiciles, though, aren't fixed. Tax policy compels some people to take a hike.