Wealthiest Californians are leaving the state. It's bad news for the economy

&gt; In the tax filing years 2020 and 2021, the average gross income of taxpayers who had moved from California to another state was about $137,000<p>Let&#x27;s assume it&#x27;s $150k for 2023 (high)<p>&gt; What’s different is that in each of the prior two years, more than 250,000 Californians with at least a bachelor’s degree moved out, while an average of 175,000 college graduates from other states settled in California<p>That&#x27;s 75k net loss, assuming 100% employment (high)<p>&gt; In California, the top tax rate for personal income is 12.3%.<p>Assuming all loss income was at the highest bracket (high), the total loss in tax revenue: 75k * $150k * 0.123 = $1.38B<p>Realistically, the number could be lower because the calculation above is conservative.<p>&gt; State budget analysts recently projected a record $68-billion deficit in the next fiscal year because of a 25% drop in personal income tax collection in 2023.<p>That&#x27;s $1.38B vs $68B<p>I think we all agree that California has lost population, but I feel like the article is manipulating statistics to drive a misleading narrative. The deficit is real and needs addressing. It&#x27;s more likely due to income dropping (lower salary due to lay off, lower realized capital gains, lower passive income, etc), rather than the &quot;wealthiest&quot; are leaving the state.

What worries me is California refuses to raise property taxes. That and strip local government of any and all say in where and how to build homes and buildings. I think that&#x27;s what is a necessary part of any solution. Raise property taxes because without it, your income tax will have no upper bound.

The SALT deduction used to serve as a kinda-sorta cost-of-living adjustment for the federal tax code. Tax brackets don&#x27;t consider cost of living, so taxing someone earning $200k in CA the same as someone earning $200k in, I dunno, Nebraska, isn&#x27;t exactly fair. But since higher-CoL areas tend to have higher taxes, the CA earner at least got to deduct the enormous state taxes they paid from their federal return.<p>The TCJA capped the SALT deduction at $10k for married filers, which is an absolute joke to anyone who pays taxes in CA or NY. But that cap goes away in (I think) the 2025 tax year. I don&#x27;t think CA has to do anything but wait out the clock and make damn sure that its representatives stonewall any legislation to extend the SALT cap.<p>And yes, I know that econonmists absolutely love the SALT cap because it&#x27;s a tax on non-poor people. But the point of the tax code is not to extract every last penny from non-poor people -- it&#x27;s to make sure everyone is contributing fairly to a well-run society at all levels. If you want states to be the laboratory of democracy, that&#x27;s fine, but you can&#x27;t do that by penalizing states that have high taxes in order to pay for services that the federal government doesn&#x27;t provide. And that&#x27;s precisely what the SALT cap does (and was explicitly intended to do).

Something I picked up in era of machine learning is why humans are so terrible at making long term decisions - if artificial neural nets model how our minds work even a little bit it is a miracle that humans are capable of symbolic logic and long-term decision making outside of ritual.<p>That makes this sort of thing annoying. The odds of arriving at &quot;why did this happen?&quot; through rational discourse are very slim. However, I do recall a number of years ago people making arguments like &quot;lol what are they going to do, leave?&quot; and it appears that was wrong. And I would encourage people who are gung-ho about US debt overall to reassess their beliefs in light of that - it doesn&#x27;t look like the money was invested productively to me and it is a dangerous assumption that there will be wealthy people around to pay off someone else&#x27;s stupid spending.<p>But the real problem here is not that the current policies don&#x27;t create enough wealth. That is a problem, but the real problem would have been a decade or more ago. It is like when the local dam runs out - risky decisions and bad principles would have taken root decades ago that were, in hindsight, risky and reckless.

So, speaking as a former Californian (albeit briefly, 1989-1992) and current Texan (over 20 years), I think that, while there are many substantive and important policy differences between the two states, none of them are the core reason why people leave California to come to Texas (or other states).<p>The core reason is that, even compared to places like Florida and Texas that have seen property prices go up a lot lately, California&#x27;s urban areas are hideously expensive. The only way that I know of to fix this, is for a bunch of people to leave those high-density, urban areas. They could move to inland California, but if they&#x27;re leaving the city they&#x27;re in, they often decide to go to another (less expensive) city, in another state. This is the most direct solution to the problem of property being too expensive in California.<p>Not saying that California has perfect policies or anything, but their biggest problem is the runup in property prices caused by past successes.

&gt; Tax filers in the top 1% of income, earning around $1 million and above, have typically accounted for 40% to 45% of the state’s total personal income tax revenue<p>One problem with very progressive taxation is you become dependent on relatively few people, possibly with their own income sources undiversified. If these people move, the stock market has a flat year, or the tech sector gets hit, that&#x27;s a lot of money, even if 95% people in the state are still doing ok.<p>&gt;&gt; It’s probably going to be some combination of cutting back spending and raising taxes<p>The article almost acknowledges this, but if taxes really are chasing away people, even more taxes gets you into a death spiral.

&gt; What worries me is California refuses to raise property taxes.<p>Not true. Every time a property is sold, the taxes are reassessed. And in CA, that always means an increase.

<a href="https:&#x2F;&#x2F;archive.ph&#x2F;XhSEE" rel="nofollow">https:&#x2F;&#x2F;archive.ph&#x2F;XhSEE</a>

&gt; With investors and high-income taxpayers receiving substantial compensation in the form of stocks, last year’s sluggish stock market accounted for a major share of the decline in state income tax revenues.<p>There might be something to the article, but that&#x27;s a year out of date. The Nasdaq was up 43% in 2023. It makes me wonder how much of the article might have already played out.

It&#x27;s not a surprising trend, there&#x27;s been a steady build up of tax reasons that have made California a worse deal:<p>- removing the SALT deduction hurts Californians (and NY most) with their high taxes and high wages<p>- Capping the mortgage deduction to $750k only matters in places where houses are over $1MM (like California)<p>- Because even federal taxes are progressive, if you can work remote make half as much money in a place that costs half as much, you&#x27;ll take home proportionally more

This reads like a disjointed opinion piece but it does link to one piece of research on the topic by Joel Kotkin that looks a bit more grounded in data:<p><a href="https:&#x2F;&#x2F;joelkotkin.com&#x2F;wp-content&#x2F;uploads&#x2F;2022&#x2F;01&#x2F;Restoring_the_California_Dream.pdf" rel="nofollow">https:&#x2F;&#x2F;joelkotkin.com&#x2F;wp-content&#x2F;uploads&#x2F;2022&#x2F;01&#x2F;Restoring_...</a>

As someone who left CA and ended up in TN - yup.<p>No income tax, better internet, better entertainment. I’m frankly confused how long CA will continue towards its own destruction.

I find it fascinating how the US government pits every state against each other. Yes, people are leaving a high tax state to a low&#x2F;no tax state. But (just using Texas as an example) what happens when Texas&#x27; growth based ponzi scheme stops growing?<p>Not to mention the infrastructure - The electrical grid is already creaking, and the commuting situation is already absurd in and around the major metro areas.

It&#x27;s crazy how poor I feel in this state, namely northern california. Basically the state is for anyone that bought a house 20+ years ago, or multi millionaires. Everyone else is squeezed to the point they see no option but to move.

Nevada has _no_ income tax? How do they pay for anything? In Sweden, income tax accounts for 60% of the entire tax base. Do states in the US have other revenue streams other than taxes? Because I just assume that corporate tax is also a non-starter

California has the highest or second highest poverty rate in the country when you account for cost of living. The way California has been run is an absolute embarrassment.

This seems like the classic boom&#x2F;bust cycle of capitalism and government. One upon a time, CA had things like free education through the UC and CSU system, and a tax rate that seemed similar to other states.<p>With the adoption of Prop 13 they eliminated much of the property tax revenue, and then ratcheted up the income and sales tax to pretty much max amounts while only collecting property tax from new(ish) home buyers. The Trump tax cuts then penalized upper-middle-class tech workers, all while continuing to reduce benefits. Utility deregulation has led to rolling blackouts during potential windstorms, and poor forest management has brought about some big fires.<p>Other states are also in on the zero-sum game that is bidding tax breaks to get companies to relocate.<p>This seems like a normal cycle of capitalism. If CA wants to change the game, they could consider options like the return of low-cost (free) schooling for CA residents, normalizing their property tax structures, or opening a single-payer healthcare system to CA residents.

Did they figure out how to tax California residents who leave the state? They were trying.