Wealthy Californians are fleeing the state, putting tax revenue at risk

The population of California posted a decline of tens of thousands in 2023. Among them are some of the wealthiest Californians, who account for a sizable portion of the state's tax base. 

The state’s population dropped by about 75,400 over 12 months, bringing it to over 38.96 million as of July 1, the U.S. Census Bureau estimated Tuesday.

Those figures were part of a wider release from the Census Bureau regarding the population of the country as a whole and its 50 states.

Tax Foundation Vice President of State Projects Jared Walczak told FOX Business in a Thursday afternoon interview that California’s migration numbers were "even more stark" than the newly-released population figures.

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California had a total of over 399,400 tax returns leave the state and over 241,200 come into the state in 2020-2021, resulting in a net loss of about 158,200, according to IRS migration data. For individuals, the IRS said the state netted over 331,700 fewer people in that time frame. 

"California has led the nation for years in out migration and, recently, in outright population decline," Walczak said. "California is one of only a handful of states that is facing a budget deficit, and one of only a very small number that has seen tax revenues reversed in the past year. Most states continue to see rising tax revenues."

Earlier this month, the Legislative Analyst’s Office projected California could see a budget deficit of $68 billion for the upcoming fiscal year if not solved. 

It linked that deficit largely to a "severe revenue decline" that involved a 25% drop in total income tax collections in 2022-2023. Things like the postponement of certain tax payments and economic weakness played into that, according to the office’s report.

Walczak said that part of the state’s revenue decline "is because they are increasingly seeing not just population decline, but some of their wealthiest and most significant taxpayers leave the state."

Between 2020 and 2021, there was a net of over 27,300 fewer tax returns in California that reported an adjusted gross income of at least $200,000, the Tax Foundation found, citing IRS migration data.

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California "has now gotten to the point where they’re seeing an actual decline, which is extremely rare, but has long seen a net out migration," he said. "It’s not a coincidence that California poses some of the country’s highest taxes at a time of much greater tax competitiveness when 29 states have cut individual or corporate income taxes in the past three years. California is only one of a handful to have actually raised taxes."

Economic factors like the cost of living and the housing market have also contributed to people moving out of California, and so has remote work, according to the Los Angeles Times.

Roughly 40% of revenue that California brings in on a yearly basis from personal income tax comes from the top 1% of taxpayers in the state.

The population decline could put the long-term funding prospects of some California programs at risk, according to Walczak. 

"Not only is the state highly exposed to fluctuations in the stock market, but it’s also heavily reliant on the wealthiest taxpayers and if they leave the state, the impact is substantial," he said. "California also has expansive government programs that rely for funding not only on these high net worth individuals but on the idea of continuing population growth and employment growth. The way you pay for the benefits in a state like California is by the next generation earning more than the last and paying more into the system."

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For California’s $68 billion budget deficit, the Legislative Analyst’s Office posed drawing from its $24 billion in reserves, reducing Proposition 98 spending and other measures as possible solutions.

In addition to California, the populations of seven other states went down in 2023, the U.S. Census Bureau said Tuesday.

The nation as a whole reached a population of 334.9 million in 2023, according to the bureau. It hit that level after growing by 1.6 million people in a 12-month frame.