Giving clear confirmation to the mass exodus from California, the U.S. Census Bureau’s recent revelation points trouble for the golden state: the state’s population is decreasing at a rapid rate.
According to Census Bureau, California’s population decreased by approximately 75,400, reducing it to just over 38.96 million as of July 1, 2023.
This decline is not merely a number; it represents a significant portion of the state’s affluent residents and, consequently, its tax base. As California faces a disconcerting population dip, it now faces a looming $68 billion budget deficit and a severe 25% drop in income tax collections.
Jared Walczak of the Tax Foundation painted a grim picture of California’s plight in his interview with FOX Business.
California “has now gotten to the point where they’re seeing an actual decline, which is extremely rare, but has long seen a net out migration,” he said. “It’s not a coincidence that California poses some of the country’s highest taxes at a time of much greater tax competitiveness when 29 states have cut individual or corporate income taxes in the past three years. California is only one of a handful to have actually raised taxes.”
The IRS migration data further cements this fact, indicating a net loss of around 158,200 tax returns and over 331,700 individuals between 2020 and 2021.
California’s financial woes are intricately tied to its departing wealthy residents. The state witnessed a net decrease of over 27,300 tax returns from individuals earning at least $200,000 during the same period.
This exodus is particularly concerning as approximately 40% of California’s yearly personal income tax revenue relies on the top 1% of its taxpayers.
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The Tax Foundation’s findings suggest that the state’s high taxes, coupled with competitive tax cuts in other states, are pushing its most substantial contributors to seek refuge elsewhere.
The ramifications of this population and revenue decline are profound. California’s economic stability is at risk according to Walczak.
“Not only is the state highly exposed to fluctuations in the stock market, but it’s also heavily reliant on the wealthiest taxpayers and if they leave the state, the impact is substantial,” he said.
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“California also has expansive government programs that rely for funding not only on these high net worth individuals but on the idea of continuing population growth and employment growth. The way you pay for the benefits in a state like California is by the next generation earning more than the last and paying more into the system,” he continued.
Compounding these challenges are broader economic factors such as the high cost of living, extremely high taxes and housing market issues, as well as the rise of remote work, which frees individuals from geographical ties to their jobs. These factors contribute to the attractiveness of other states over California.
In response to the impending fiscal crisis of a $68 billion budget deficit, the Legislative Analyst’s Office has suggested several strategies, including utilizing the state’s $24 billion reserves and reducing certain expenditures.
However, these are mere stopgap measures, and without a significant reversal in migration trends, California’s financial future remains tenuous at best.
As the population of seven other states also declines, the U.S. overall continues to grow, reaching 334.9 million in 2023. But for California, the message is clear: its policies and economic conditions are driving away its most valuable residents, and the state must undertake substantial reforms to reverse this trend and secure its fiscal future or face real peril.
