California is losing vital high-income taxpayers

After 170 years of population growth – sometimes explosive growth – California is now experiencing population loss for the first time.

As foreign immigration and birth rates have declined, they no longer compensate for the net losses of state-to-state migration. Since 2010, 7.5 million people have left California while 5.9 million people have come from other states.

This raises a question: who is leaving California and why?

“Most people who cross state lines do so for housing, employment, or family reasons,” Hans Johnson, a demographer at the Public Policy Institute of California, wrote earlier this year. Johnson also notes that those who leave California tend to be poorer and less educated than those who migrate to the state, which is not surprising given that housing and employment dominate motivations.

There is, however, a less obvious subset of those leaving California – high-income families seeking relief from notoriously high state taxes.

The San Francisco Chronicle shed some light on this phenomenon when one of its reporters dove into Internal Revenue Service data that revealed the favorite destinations of high-income former San Franciscans.

The newspaper found that 39,000 San Franciscans who filed 2018 federal income tax returns left town before filing 2019 returns. Collectively, they took $10.6 billion in income with them, while the people who moved to the city during this period reported only $3.8 billion in income.

“The county that saw San Francisco’s wealthiest movers on average was Teton County, Wyoming, home to Jackson Hole and its famous ski resorts,” the Chronicle reported. “The data showed that 40 different families, comprising 63 people in total, filed their 2019 taxes in San Francisco and then filed their 2020 taxes in Teton County, representing a total of $37 million in income moving from San Francisco to Teton. That’s an average of $586,000 per person, according to IRS data.

Two other ski-resort-rich counties are among the top 10 destinations for San Francisco’s wealthiest movers. Washoe County, Nevada, which includes the tilted village of Lake Tahoe, was No. 2 while Summit County, Utah, site of the Park City Ski Resort, was No. 6. Palm Beach, Florida, was #3.

While the Chronicle article cited the popularity of resorts as a destination for wealthy expats, the most glaring fact is that their favorite new homes are often in states that levy little or no income tax. personal income. Tax-free states include Wyoming, Nevada, Washington, Texas, and Florida. Utah has a fixed rate of 4.85%.

California’s top tax rate of 13.3% on taxable income over $1 million is by far the highest in the country and, added to the top federal rate of 37%, brings the overall bite to more than 50%. Additionally, a tax overhaul under President Donald Trump essentially ended the ability to deduct state income taxes on federal returns.

On the contrary, California taxes on the wealthy are likely to rise. Proposition 30, a measure on the November ballot, would raise the top marginal tax rate to more than 15%, raising money for climate change programs, and another tax hike heads to the ballot of 2024.

The wealthy are quite capable of protecting themselves, including moving to another state. However, they are vitally important to schools, health care, and a myriad of other California public services. Income taxes account for three-quarters of California’s general fund revenue, and the wealthiest 1% of California taxpayers generate nearly half of those taxes.

That’s only 150,000 taxpayers in a state of 40 million, so even a trickle of departures has a potentially huge impact on the budget.

CalMatters is a public interest journalism company committed to explaining how the California State Capitol works and why it matters. For more Dan Walters stories, go to Commentary.