State tax revenues in some states dropped in recent years, while others boomed—what are the implications?
While people have always moved to find advantageous financial environments, the pandemic fueled relocation as remote workers fled some cities to live in areas with lower costs of living and greater ease in finding affordable housing. CNBC reports California and New York lost $90 billion in much-needed tax revenue as high-income residents moved elsewhere.
For states with high-personal income taxes, like New York and California, longer-term trouble may be ahead. States that robustly tax wealthy or high-income earners in order to fund public coffers may face continued loss of their tax base as workers migrate across the sunbelt to more fiscally welcoming states.
Even as California and New York lost residents, states like Florida are basking in boosted revenue after gaining 128,000 new households in 2021—with about a third of those from New York. Approximately 84,000 New Yorkers moved to Florida, while another 23,000 moved to Texas. New Jersey, and Illinois. Other popular relocation spots for New Yorkers are Tennessee and the Carolinas.
Migration from California cost that state $5 billion in income that headed largely to Texas and Florida. Overall, California lost 700,000 residents to states with lower tax profiles. For California residents, income tax can climb over 12 percent—Texas does not tax income.
While the numbers are startling, they represent a bump in the ongoing loss of residents from both California and New York. Even for the wealthy, areas with high taxation and even higher costs of living can be a deterrent to long-term residency. High-income workers and those with the assets to choose where they live are likely to continue the trend in the years to come.
Where does that leave states with budgets that are heavily reliant on taxed income? As the tax base empties, so will state coffers. States that continue to increase tax rates on income are likely to accelerate migration elsewhere. For at least California, climate change may do the same thing. California and New York currently project budget deficits in the next two years.
When considering a move based on economics, do the homework, and speak with an experienced tax attorney about strategies to enhance your tax profile, wherever you live.
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