Sunday Extra: California Is Losing Billions — And the Money Isn’t Coming Back
New IRS data shows high-tax states are losing billions in income to lower-tax states, raising new concerns about long-term fiscal stability.
(I had some extra time, so here’s “bonus” content for your Sunday reading…
On Friday I read a Wall Street Journal editorial titled “The High-Tax Wealth Flight Continues,” and it highlights something policymakers in Sacramento have been slow to acknowledge. The IRS has now put numbers to it. People are leaving high-tax states, taking their income with them.
The latest data shows California lost $11.9 billion in taxable income in a single year. That income flowed largely to Texas, Nevada, and Arizona. New York, Illinois, and Massachusetts are seeing the same pattern. Meanwhile, states with no income tax are gaining billions. Florida alone gained over $20 billion.
High earners are carrying more of the load, and they have the most flexibility to leave. California’s top rate sits at 13.3%, among the highest in the country. Other states have taken a similar approach — relying heavily on a smaller group of taxpayers while continuing to raise rates. That model becomes unstable once those taxpayers begin to relocate.
Massachusetts offers a clear example. After voters approved a surtax on higher-income earners, the state saw a disproportionate share of out-migration from households making over $200,000 — about 70% of total outflows.
There’s also a fiscal risk that receives less attention. State revenues have been strong in recent years, but much of that reflects stock market gains and capital income. When states depend heavily on a relatively small group of high earners, they expose themselves to budget shortfalls when economic conditions change.
People move for many reasons. But taxes shape investment decisions, business formation, and long-term planning. States that make themselves less competitive eventually pay the price.
California isn’t just losing people. It’s losing income — at scale. And under current policy, there’s every reason to expect it to continue.
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