Higher-income people are fleeing California to live in lower-tax states.
For years, we denied that. Maybe it wasn’t even happening. But it definitely is now.
It’s logical given our high taxes, high housing costs and high costs of living, period. And there’s new evidence of it.
The Public Policy Institute of California reported in March that higher-income people were leaving the state. I wrote about it. Later, the institute’s researchers dug deep into the data and saw where they were moving.
The more income the departees had, the more likely they were to be headed to states with no income tax.
“Our findings suggest that taxes might be a factor in where higher-income people go when they leave the state,” PPIC demographers Eric McGhee and Hans Johnson wrote in their recent report.
“The eight states with no income tax…drew a larger net outflow of higher-income than middle- or lower-income migrants from California, while the opposite was true in the other 41 states. There is some evidence that some households with the very highest incomes have left the state to avoid state income taxes.”
They may be leaving not just to avoid California’s highest-in-the-nation state income taxes —13.3% at the top rate —but also other state taxes. We’re a high tax state, a fact that everyone knows — except apparently Gov. Gavin Newsom.
Newsom denied Tuesday that California is a high-tax state. That’s actually what he said in a conversation with NBC’s Stephanie Ruhle at the Milken Institute Global Conference in Los Angeles.
Ruhle asked the governor: “In return for high taxes and wildfires and floods and some natural disasters — and great weather and great basketball — why should people be in this state?”
“California is not a high-tax state,” Newsom replied, turning to the audience. “And I know you’re going to roll your eyes. It is for you, but not 99% of the others.
“There’s a lazy punditry that California is a high-tax state.”
Newsom said there’s a new “deep analysis” — which he didn’t identify — that California is “the ninth-most tax-friendly state for the middle class.”
“I’m not a tax-and-spend liberal,” he insisted.
I’m not sure what’s considered middle class earnings in this high-cost state, but a single filer pays a 9.3% tax rate with taxable income of roughly $66,000. A married couple making about $133,000 pays the same rate. That’s the highest rate in the nation for those earnings.
And it’s not just the top 1% who feed the state treasury. The top 20% — whose incomes exceed $119,000 — pay 91% of the state income tax, according to the latest data from 2021.
Our combined state and local sales tax rate — an average of 8.8% — is seventh-highest in the nation.
California also has the highest state gasoline tax.
And California ranks No. 2 — slightly behind Vermont — in state tax collections per capita at $6,325, according to the Tax Foundation, a Washington research group. That’s hardly middle class tax friendly.
But taxes aren’t the main reason Californians are leaving the state, according to the PPIC researchers. It’s high housing costs.
“Once someone decides to leave California because of housing prices, the dominant factor, taxes may play a part in where they go,” Johnson says.
“One of the things about moving out of California is you can move to almost any place and it’s going to be cheaper to live.”
People tend to move to nearby states like Nevada, which doesn’t have an income tax. Or Arizona, where the top tax rate is only 2.5%. Or Oregon, which has no sales tax.
The largest number of California departees — more than 80,000 over the last two years — have moved to Texas, PPIC found. Texas has no income tax.
“There’s a slightly higher tendency for Republicans and no-party-preference voters to leave the state,” McGhee says.
Democratic rule must be the final straw for some and they head to red states like Texas.
“But taxes and political ideology are probably tertiary factors,” Johnson says. “Housing is primary. Jobs and family are secondary.”
The Newsom administration reported Monday that the California exit continues and that our population, as of Jan. 1, slipped below 39 million for the first time since 2015. It peaked at 39.6 million in 2020. The latest count is 38.9 million.
Only 12 of the 58 counties didn’t lose population in 2022.
People continued to move from high-cost coastal areas into the more moderately priced inland, especially the Central Valley.
Los Angeles County’s population declined by 73,293 people — still less than 1%.
The two major reasons for statewide population loss were continued low birth rates, Baby Boomers starting to die and a slowdown in domestic and foreign immigration, according to H.D. Palmer, spokesman for the state Finance Department.
But the population declined less than the previous year, so the administration shouted that as good news.
California will resume gaining population within 18 months, predicted chief demographer Walter Schwarm. That’s because birth rates and foreign immigration are picking up, he said.
Is that supposed to be good or bad news? There’ll be more people clogging freeways and gulping scarce water in the next drought.
For the first time, the state reported not only the number of California residents but new dwellings — an indication of the sensitivity of this hot political issue.
California added 123,350 housing units in 2022, the largest increase since 2008, the Finance Department said. They included about 21,000 so-called “granny flats,” which the state has made easier to build.
But that’s still far less than the 300,000-plus new units per year required to meet Newsom’s previously stated goals.
The average single-family home price in California now is $790,000.
Between that and high taxes, no wonder people are moving away.
This story originally appeared on LA Times
