Taxpayers Fleeing California Take $8.8 Billion in Gross Income to Other States

California, with its relatively large tax burden compared to other states, has seen a taxpayer exodus in recent years and, along with it, billions in taxable gross income.

State-to-state migration data recently released by the Internal Revenue Service (IRS) shows that California lost an estimated net 70,534 households—or 165,355 taxpayers and their dependents—in the years 2017–2018, with those fleeing taking around $8.8 billion in net adjusted gross income with them.

Interstate migration flows are influenced by a number of  factors, including retirement, job opportunities, and housing costs. Brandon Ristoff, a policy analyst with the California Policy Center, told Center Square that the flight of billions of dollars from California is driven by the state’s “bad policies on the economy, education and more.”

“California used to be a place where everyone wanted to live, but now California has become a place where people want to leave,” he told the outlet.

The top three beneficiaries of the California exodus were Texas, Arizona, and Nevada. The bulk of the departing Californians filed their taxes in Texas, with the Republican-led state seeing a net inflow of 72,306 taxpayers and their dependents, and a gross income boost of some $3.4 billion.

An estimated 53,476 Californians relocated to Arizona, bringing with them around $2.2 billion in gross income. Nevada welcomed 49,745 California taxpayers and their dependents, along with a gross income of $2.3 billion.

There is little agreement among experts as to how large a role taxes play in state-to-state migration.

A routine Census Bureau survey asks people who move any distance the main reason for their decision to relocate, including employment, housing, going away for college, crime, or to join a significant other. The most popular choices in 2019–2020 (xls), ranked according to popularity, were “wanted newer/better/larger house or apartment,” followed by “new job or job transfer,” “to establish own household,” “other family reason,” “wanted to own home, not rent,” and “wanted cheaper housing.”

The least popular were “natural disaster,” “change of climate,” and “foreclosure or eviction.”

But while taxes were not part of the Census Bureau survey, a 2018 analysis by the Cato Institute argued that taxes do influence migration, and said tax-related motivations could be inferred from some of the Census Bureau survey’s responses.

“The Census Bureau does not ask movers about taxes. But some of the 19 choices may reflect the influence of taxes. For example, people moving for housing reasons may consider the level of property taxes since those taxes are a standard item listed on housing sale notices. Similarly, people moving for new jobs may consider the effect of income taxes if they are, for example, moving between a high-tax state such as California and a state with no income tax such as Nevada,” the institute wrote in the analysis.

California, with its state-local effective tax rate of 11.5 percent, ranked eighth highest in terms of the state-local tax burden for 2019, according to a Tax Foundation analysis. Texas, by contrast, with a state-local effective tax rate of 8 percent, ranked 47th. Arizona, with a state-local effective tax rate of 8.7 percent, ranked 45th, while Nevada, at 9.7 percent, came in at 29th.

According to the Tax Foundation’s 2021 State Business Tax Climate Index, California’s ranking was even more grim, second only to New Jersey, which the foundation labeled as least tax-friendly.