California, New York, Illinois Biggest Losers Amid Exodus to Low-Tax States: IRS

The latest tax migration data from the Internal Revenue Service (IRS) shows that the exodus of taxpayers from high-tax states continued from 2020 to 2021, with California, New York, and Illinois again suffering some of the nation’s biggest losses of people and money.

California’s tax base shrank by nearly $29.1 billion as the Golden State saw a net loss of 332,000 taxpayers and their dependents during a time of widespread lockdowns, stay-at-home orders, and business closures, according to the IRS migration data released Thursday.

In second place was New York, which was hit by a net loss of $24.5 billion and 262,000 people. Illinois was third, with a net loss of $10.9 billion and 105,000 people. Other high-tax states such as Massachusetts ($2.6 billion) and New Jersey ($2.3 billion) also saw tens of thousands of people moving out during the period.

On the winning side, Florida reaped the benefits of the wealth migration more than any other state, enjoying a net gain of $39.1 billion in gross income from 256,000 new residents. Texas, which gained $10.9 billion and 175,000 people, came in second. They were followed by Nevada ($4.6 billion), North Carolina ($4.5 billion), Arizona ($4.4 billion), South Carolina ($4.2 billion), and Tennessee ($4.1 billion).

The data was compiled by comparing the mailing addresses on one year’s income tax return and that of the next. The most recent migration data reflects address changes that occurred between when taxpayers filed their tax year 2019 returns in calendar year 2020 and when they filed their tax year 2020 returns in calendar year 2021.

Even before the COVID-19 pandemic, California had already seen a net outflow of people and money to other states. According to previous IRS data, California lost $8 billion in income in 2018 and $8.8 billion in 2019.

California still takes in more tax revenue than any other state due to its tax structure, which places higher rates on wealthy residents. Gov. Gavin Newsom announced last May that his state had a historic $97.5 billion budget surplus.

There remains a question over the stability of such a system that heavily relies on taxing the top one percent of earners. In January, just eight months after Newsom unveiled the unprecedented budget surplus, the Democrat governor asked lawmakers to cut billions of dollars of investment and put expensive programs on hold to balance a $22.5 billion budget deficit in case tax revenues don’t rebound.

In New York, the Democrat-led state Legislature has reached a deal with Gov. Kathy Hochul, who resisted a proposed plan to increase tax rates on those earning more than $5 million and $25 million a year from 10.9 percent to 11.4 percent. Like California, New York generated billions of dollars in budget surplus from previous tax hikes on rich New Yorkers.

Illinois Gov. J.B. Pritzker recently questioned whether his state is losing population, claiming that the state has grown in size.

“We did not lose population as you saw when the Census Bureau data came through for the 2020 census,” Pritzker said in March. “We actually gained population, especially as they looked more closely after the initial announcements at what happened state to state.”