The recent census estimates revealed a significant decline in California’s population, accounting for approximately 75,400 fewer residents, a trend that encompassed some of the state’s wealthiest individuals. Notably, this decline of tens of thousands in 2023 holds critical implications for the state’s tax base.
Jared Walczak, Vice President of State Projects at the Tax Foundation, emphasized to FOX Business the starkness of California’s migration numbers, elaborating on the extent of the out-migration in contrast to the newly released population figures. The IRS migration data reported over 399,400 tax returns exiting California, while only 241,200 returns moved into the state during 2020-2021, resulting in a net loss of around 158,200 returns. Specifically, over 331,700 fewer individuals were recorded entering the state during that period.
Walczak underscored California’s prolonged trend of outbound migration, stating that the state has witnessed not just a drop in population but also the departure of some of its most affluent and substantial taxpayers. He attributed a portion of the state’s revenue decline to the departure of high-income earners, with over 27,300 fewer tax returns reporting an adjusted gross income exceeding $200,000 between 2020 and 2021.
The Legislative Analyst’s Office projected a daunting $68 billion budget deficit for California in the upcoming fiscal year, primarily attributing this deficit to a severe revenue decline marked by a substantial drop in total income tax collections, which plummeted by 25% in 2022-2023. The office’s report indicated factors such as the deferral of specific tax payments and economic fragility as contributors to this decline.
The state’s dependence on the wealthiest taxpayers, economic instability, high tax rates, and cost of living have prompted this migration exodus. Walczak pointed out that California’s heavy reliance on the top 1% of taxpayers, contributing nearly 40% of yearly personal income tax revenue, could jeopardize funding for essential programs, creating substantial challenges for the state’s long-term financial prospects.
This decline in population has prompted concerns about the sustainability of funding for California’s programs. Walczak warned that the state’s extensive government programs heavily rely on continued population and employment growth, posing potential risks if high net worth individuals continue to leave the state. The Legislative Analyst’s Office suggested tapping into reserves and reducing spending as possible measures to address the deficit.
California’s population decline is among eight states experiencing similar trends, a phenomenon that the U.S. Census Bureau highlighted in its latest report. The country’s overall population reached 334.9 million in 2023, marking an increase of 1.6 million people over a 12-month period.