California says it lost $2 billion in state income taxes from earners leaving

(The Center Square) - California’s Legislative Analyst’s Office says the state lost approximately $2.3 billion in state personal income taxes due to outmigration in the 2022-2023 fiscal year. With Newsom claiming the state's population grew in 2023, the net decrease in taxpayers and taxpayer dependents for fiscal year 2022-2023 suggests California could be losing productive individuals and their families as it gains non-tax-filers.

“Recently released figures from the IRS show that California continues to lose taxpayers to other states at a heightened rate that began during the pandemic,” wrote the LAO. “Foregone income tax collections due to outmigration reflected 1.6% of income tax revenue in 2022-23, up from about 0.5% in the years prior to the pandemic. Should this elevated trend continue, outmigration could drag annual income tax growth below its long-term average.”

California narrowly balanced a $47 billion budget shortfall this year through a combination of spending cuts, shifts, deferrals, reserve withdrawals, and unofficial internal borrowing. Outmigration of individuals who pay taxes and their dependents — their families — has largely been to Texas, Nevada, Florida, and Arizona.

The LAO’s report notes how annual net outmigration has “doubled” since 2019, with the outmigration to immigration gap now as large as it was in the 1990s “when defense and aerospace contractors downsized after the end of the Cold War.”

In 2019, a net 170,000 Californian taxpayers and their dependents left the state, a figure that rose to 263,000 in 2020 and 332,000 in 2021, before falling to 307,000 in 2022. This figure does not include international migration in or out of the state, but it still demonstrates that more American citizens are moving out of than moving in to California.

With California reporting $123 billion in personal income tax revenues for fiscal year 2022-2023, that year’s outmigration losses account for $2 billion. For an individual to have filed in another state, it means they would have left the prior year, which means a return to population growth for 2023 would not register as growth in taxpayers until final filing data is out for 2024; the most recent IRS tax and migration data, released earlier this summer, is for 2022.

With the governor’s office claiming a slowdown in outmigration and continued growth in immigration, the state could likely soon be gaining taxpayers, if it has not already, though the data seems to suggest these are lower income individuals coming in — who may be younger and may not yet have started a family — as higher income individuals later in their careers and with larger families leave.

“Foregone revenue increased more (three-fold) than net domestic outmigration of people (two-fold) because, prior to the pandemic, outmigration was concentrated among lower-income households,” continued the LAO. “Since then, more middle- and higher-income households have moved to other states, meaning the effect on state revenue has been greater because these tax filers tend to make larger income tax payments.”