California Loses Most Tax Revenue in U.S. as Wealthy Move to Tax-Friendly States

Internal Revenue Service (IRS) building in Washington on June 28, 2023. (Madalina Vasiliu/The Epoch Times)

California has lost more than $340 million in yearly tax income as its wealthiest residents moved to lower-tax states, according to a study by national online real estate service MyEListing.

The state ranks first among those with the worst net-negative tax migration, according to the study.

“Despite its numerous attractions, from the booming tech industry and world-class universities to beautiful landscapes and cultural richness, California’s high personal income tax rates seem discouraging for many high-wealth individuals,” MyEListing said in the study’s summary. “This, coupled with the state’s high cost of living, will likely fuel a wealth migration out of California.”

The departure of high-income residents can decrease demand for luxury real estate and affect the commercial real estate sector. It also impacts job creation, as wealthy residents often play a role in business expansion and entrepreneurial activities, the study found.

The high cost of living is a major reason why California is losing hundreds of thousands of residents who move to other states each year, experts said in EpochTV’s recent documentary “Leaving California: The Untold Story.”

California lost nearly 700,000 residents from April 2020 to July 2022, according to the U.S. Census Bureau.

A similar picture was reported by some of the state’s top economists from Chapman University in its latest economic forecast.

The most concerning problem for California was the continued loss of residents—especially high-income earners—to income-tax-free states, according to Professor Jim Doti, the university’s president emeritus.

“One percent of the people in California pay 50 percent of the tax,” Mr. Doti said June 26 during a presentation of the economic forecast. “It’s becoming clear—the outflow is not only people, it’s dollars as well.”

Jim Doti, professor of economics and president emeritus of Chapman College in Orange, Calif. (Hau Nguyen/The Epoch Times)

Data released by the Internal Revenue Service in May revealed about 332,000 taxpayers left the state between 2020 and 2021. This resulted in a $29.1 billion loss of taxable personal income in 2021, following a loss of $18 billion in 2020.

In an earlier study, the Public Policy Institute of California reported in March the state experienced a significant rise in the number of wealthy households leaving.

In 2021, nearly 220,000 wealthy residents left the state, which was a significant jump from the 150,000 that left in 2019, that study found.

California was first among other Democratic Party strongholds to capture the top-five states losing the most revenue as high-income earners relocated.

New York came in second behind the Golden State, losing nearly $300 million from its yearly tax base. The state’s high personal income tax rates and cost of living were also factors in pushing residents to relocate, according to the MyEListing study.

Coming in third was Illinois, which lost nearly $142 million in tax revenue. New Jersey, with $135 million lost, and Massachusetts, losing $129 million, came in fourth and fifth place in the study.

Florida, Texas Top List

Florida was top of the list in the survey for capturing the most income from residents fleeing other states. The state recorded $12.4 billion in new tax revenue from incoming new residents.

“High-income earners are increasingly choosing the Sunshine State, reflecting an age-old economic axiom: Money goes where it is treated best,” the survey stated.

Florida’s financial landscape, myriad growth prospects, and debtor protections were some of the reasons the study found that high-income earners and families relocated there.

Gov. Ron DeSantis, who was reelected by a landslide last year, tolzd a gathering of supporters at the Ronald Reagan Presidential Library in Simi Valley, California, in March, he believed California’s policies have driven thousands to Florida.

“I think we are drawing people who were very sensitive to the state governments they lived under, and they were coming because they believed in the free state of Florida,” he said.

Texas wasn’t far behind, drawing $10.7 billion in new revenue from migrating wealthy residents.

The southern state attracted high-income earners because of its tax advantage, the study found.

“Various unique benefits draw these high net-worth individuals to the Lone Star State,” according to the study. “Texas, like Florida, also boasts the absence of personal income tax, a significant lure for those with hefty incomes.”

Arizona drew an additional $9.4 billion in net revenue gain, placing it the third most popular state for the wealthy in the study.

“The state’s unique combination of beneficial tax structures, thriving business environment, and appealing lifestyle make it an attractive destination for high-income earners,” the study found.

Rounding out the top five states earning the most in new revenue were Colorado, with $8.6 billion in new net income, and North Carolina, earning $7.8-billion more.

MyEListing used migration data from the Internal Revenue Serivces’s statistics of income tax stats to formulate the results of the study, according to the company. They extracted state-by-state tax migration data, focusing on high-income earners as defined by the IRS. States were ranked based on positive and negative net income migration.