California Gov. Gavin Newsom announced his decision to convene a special session of the state’s legislature to safeguard the state’s progressive economic and social policies. He said, “The freedoms we hold dear in California are under attack, and we won’t sit idle.”
Newsom’s decision reminds me of the USSR’s action to build a wall around East Berlin to ostensibly safeguard that bastion of liberty and prosperity from the evil forces of capitalism. And just as East Berliners found ways around the wall and ultimately to break it down, Californians are finding ways to leave the state in droves. Those California ex-pats are apparently more than willing to give up the “freedoms” that Newsom holds dear.
The recent IRS report on “Gross Migration for Selected Income Items by State of Adjusted Gross Income” throws light on that issue. It presents a wealth of hard data based on actual federal taxpayer returns that pinpoint the migratory inflow and outflow of people for all 50 states.
The 2022 report shows that the outflow of individuals from California to other states was 701,000, while the inflow was 398,000. California’s net outflow of 303,000 was the highest of all 50 states. It was followed by New York state with a net outflow of 221,000 and Illinois at 87,000.
In addition to people flows, the IRS report includes the inflows and outflows of adjusted gross income (AGI) by state. So, it’s also possible to determine the impact of California’s net outflow of 303,000 people on AGI. For example, the average AGI for people leaving California was $134,000 versus a significantly lower $113,000 for those moving into the state. The migration of people with higher incomes leaving the state versus those moving out resulted in a net loss of $24 billion in California’s total AGI in 2022.
That loss was the highest of any state. New York’s net loss of $14 billion was the second highest. Not coincidentally, the Tax Foundation’s ranking of state and local taxes placed California at second highest and New York at third. In sharp contrast, Florida’s gain of $36 billion in total AGI was the highest, followed by Texas at $10 billion. Both of these states have no state income tax.
When the migratory flows of AGI for all 50 states are compared to the Tax Foundation’s tax ranking, a clear pattern emerges. The ten states that ranked lowest in taxes (1-10) experienced a net increase in total AGI of $48 billion; the next ten (11-20) added $13 billion; the next ten (21-30) added $1 billion; the next ten (31-40) lost $11 billion; while the states that ranked highest in taxes lost $49 billion. Note that the loss in total AGI for the ten states that ranked highest in taxes was almost the same as the gain in total AGI for the states with the lowest state taxes.
Even worse for California’s economic future is that the largest percentage of the state’s net outflow in 2022 of 303,000 is in the 35 under 45 age cohort. That represents 90,000 or 30% of the net outflow.
The 2022 IRS AGI report is not an anomaly. California experienced net losses in AGI every year between 2017 to 2022. Those losses total almost $100 billion. What should be particularly alarming to Newsom and his super majority of Democrats in the legislature is that these annual losses are cumulative. That is, the net outflow of AGI in one year continues on to the next and beyond.
So, as Newsom calls for a special legislative session to figure out how to protect Californians from losing their freedoms, taxpayers are voting with their feet by leaving Newsom’s much-ballyhooed inner sanctum and uprooting their families and taking their earning power with them.
Jim Doti is President Emeritus and Rick Muth Family Chair in Economics at Chapman University.