Approximately 332,000 more taxpayers left the state than entered in the year following the onset of the pandemic, according to IRS data analyzing differences in zip codes on tax filings as compared to the prior year.
According to the data, the state lost $29.1 billion in taxable personal income in 2021 following a loss of $18 billion in 2020.
Businesses are leaving as well, and more are considering a move soon, according to a survey of CEOs conducted by Professor of Economics Jim Doti at Chapman University in collaboration with three University of California campuses: Irvine, Los Angeles, and San Diego.
He additionally said it’s not just about a loss of tax revenue.
“The greatest loss to a state is the loss of human capital, not just jobs or businesses,” Doti said. “If graduate students move to Texas and Florida, it will have a negative impact that is magnified because we’re losing our best and brightest.”
The IRS data revealed Texas as the number one destination for ex-Californians, with more than 52,000 tax returns coming from households that moved there between 2020 and 2021, representing approximately 105,000 people.
More than 60,000 moved to Arizona, with another 50,000 relocating to Nevada. Washington State and Florida each drew more than 40,000, according to the IRS.
Statistics from the state’s Legislative Analyst’s Office showed that California’s net migration tracked with cheaper home prices, with the state’s median home sale price currently more than double the national average.
States drawing the greatest number are those with no income tax, including Texas, where median home prices are $341,300 compared to California’s $742,800, according to Redfin—an online real estate broker.
Texas, however, makes up for its lack of income tax revenues with significantly higher property taxes that are re-adjusted according to market prices.
Additionally, high taxes on energy and fuel are in part responsible for the increased cost of living in California, a primary factor driving many to leave the state, according to experts. Gas prices average $4.84 a gallon as of May 4, as compared with $3.57 nationally.
“Concerns have been raised that changing migration patterns may limit California’s ability to raise revenue via its income tax system,” she said. “The evidence available to date suggests that recent net out migration from California has reduced, but not reversed, the rate of growth in California income tax revenues.”
In addition, there is mathematically less money flowing in the Golden State’s economy, a factor that will impact businesses and local municipalities, as gross sales and sales tax revenues will inevitably decline with the loss of income, according to experts.
“Less income, less tax revenue, and less spending lead to a less vibrant California economy,” Chapman’s Doti said.
New York is in a similar situation, having lost $45 billion in taxable income over the same two-year period, according to the IRS report.
Similarities between the two states leading to migration outflows include their high tax rates, cost of living, and the timing and severity of their pandemic restrictions and lockdowns, according to experts.
Data from MyMove—an online moving company—shows California and New York losing the most residents, with Texas gaining more than any other state during the pandemic.
