Trapped in California
That saying was common in my day. Perhaps it still is. It means that decisions have consequences. If you do something that has unpleasant consequences, you will pay the price."You've made your bed. Lie in it."
But what about people who do dumb things, start paying the price, and do the same thing over and over again?
What about people with high incomes who live in states with high taxes, who refuse to move? They cry out for tax relief. It is available within a few months. But they never move.
They cry out. Do they think the tax collectors care? Do they think that voters by the millions who pay no income taxes care a whit about the suckers who sit tight, hoping for tax mercy?
It never ceases to amaze me that people who can move refuse to move.
I moved out of California to a state with no state income tax--Washington--in December 1975. I never looked back. I have lived in states with income taxes, but nothing like the top tax bracket of California: 13.3%. This is reality:
For single and married filing separately taxpayers:
1% on the first $7,850 of taxable income.
2% on taxable income between $7,851 and $18,610.
4% on taxable income between $18,611 and $29,372.
6% on taxable income between $29,373 and $40,773.
8% on taxable income between $40,774 and $51,530.
9.3% on taxable income between $51,531 and $263,222.
10.3% on taxable income between $263,223 and 315,866.
11.3% on taxable income between $315,867 and $526,443.
12.3% on taxable income of $526,444 and above.
A 1% surcharge, the mental health services tax, is collected on taxable incomes of $1 million or more, making California's highest marginal rate 13.3%.
Then there is a sales tax. It varies from 7.5% to 10%.
When high-income people get skinned, year after year, yet in response merely grouse a little, they should expect no mercy from voters.
A family could move to Nevada and escape the state income tax. The Nevada sales tax varies from 4.6% to 8.5%.
Nevada's home prices are maybe a third of California's. Look at housing costs nationwide. The disaster is California.
But they buy their overpriced homes, massively indebting themselves for 30 years. A recession will come. They will suffer enormous losses: upside-down mortgages. They don't think this can happen. Yes, it happened in 2009. "But this time, it's different."
States with no income tax are Washington, Alaska, Nevada, Wyoming, South Dakota, Texas, Florida, and New Hampshire (on salaries--no sales tax, either). There is no income tax on salaries in Tennessee.
Do people move out of California? Some do, but not the people with high incomes. Maybe when they retire. But their kids stay behind, buried in mortgage debt.
By comparison, New York state is a tax haven.
State income tax: 4% - 8.82%
NYC income tax: 2.907% - 3.876% (in addition to state tax)
Sales tax: 7% - 8.875%
Property tax: 1.5% average effective rate
They stay in New York City. Yet the city's real estate is astronomically expensive.
Smart people with high incomes make this money because of their specialized knowledge and their access to the Web. This means that they could live in tax havens. They stay.
When sheep stand still, they are sheared--year after year.
They bleat. The shearers laugh.
What is my conclusion? People make lifestyle decisions on the basis of things other than after-tax income. They grouse about taxes, but they don't move. They could escape, but they don't.
So, my advice is to find a region with low income taxes and low housing costs, and move there when you're young. Put down roots where it does not take massive debt to buy a home. Put down roots where your kids can stay close by when they marry.
Then start buying investment homes.
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