Wealthy Californians Head for Greener Pastures With Lower Taxes

California lost 500,000 people between 2020 and 2022, which is nearly the equivalent of the entire population of Sacramento, the state’s sixth-largest city. Actually, California didn’t lose these people. We know where they went. People die and give birth, and immigrants still move here, although in fewer numbers than in the past. Beyond that, hundreds of thousands of Californians have picked up stakes and moved to other states.

That’s an astounding figure. When I moved here 25 years ago, it wasn’t unusual for Californians to talk about heading to states with lower taxes, lower costs, and lower regulations. Nevertheless, policymakers continually planned for unending population growth. At that time, our population approached 33 million. Growth rates slowed, and now they’ve been falling. We never quite hit the 40 million mark — nor are we likely to anytime soon.

In reality, policymakers didn’t plan for future population growth. Quite the opposite. They stopped investing in freeways and even excitedly declared that the state would no longer build new ones, preferring instead to invest in little-used transit systems. They stopped building water infrastructure. Until this year’s atmospheric river levels, we were looking at a future of water rationing. They imposed so many growth-stifling rules that decent housing became unaffordable. (RELATED: From Megadroughts to Megafloods)

Even as our population numbers fell, the state’s Democratic leaders were in denial. They blamed the population losses on COVID, even though every other state experienced the pandemic — including fast-growing Texas. As the Guardian noted last year, “Officials blamed the decline on lower birth rates, higher deaths from the pandemic, and fewer people moving in from other states.”

Speaking at a 2022 conference, Gov. Gavin Newsom offered a lame explanation, saying that there are “many factors” impacting the state’s population decline. He said: “There’s been two deep analyses that drive the No. 1 factor. The vast majority, almost the entire amount, have been impacted because of visa policies in the Trump administration.” Certainly, immigration has slowed — but the state is mainly sending its residents elsewhere.

Surveys have repeatedly shown that the main reason that Californians flee is the lack of housing affordability, and, to its credit, the legislature has passed a few modest deregulatory measures designed to jump-start housing construction. But even as home prices are falling here (for a variety of reasons, some of which are national in nature), people still are fleeing.

Don’t expect Newsom or other top officials to have an epiphany about the situation. That would mean a reexamination of their fundamental policies — and the governor and lawmakers are too busy with their climate change agenda, big-spending social plans, and new bond and tax measures. Did I mention that California had an almost unbelievable $97.5 billion surplus last year — an amount larger than the entire general fund budget of most states?

Did California use the money to upgrade its infrastructure, fix its pension debts (to pay for its absurdly overpaid government retirees), or fix its tax structure so that California would become a better place to live and do business? Of course not. The state went on a social-spending spree and this year is facing a nearly $23 billion budget deficit. California may be the world’s sixth-largest economy, but its quality of life is in serious decline.

The key reason for the state’s wild surplus–deficit swings is its progressive tax system based on capital gains. When the economy booms, tax revenues soar, and vice versa. Even though California officials justify their policies in the name of helping the poor, they are dependent on the success of the very rich — people who seem willing and able to endure California’s high taxes and cost of living.

With that in mind, the latest demographic data ought to cause concern in the state capitol. “California used to gain college graduates even as it lost less educated adults,” the Public Policy Institute of California (PPIC) explained in a recent analysis. The PPIC continued: “But in the last couple of years, the state has started losing college graduates as well, quite markedly…. California is now losing higher-income households as well as middle- and lower-income households.”

The Los Angeles Times’ George Skelton puts this in stark terms: “It wouldn’t take many fleeing rich people to hurt the state treasury. The top one percent of earners pay nearly 50 percent of the state income taxes. The top 10 percent kick in roughly 80 percent.” At some point, the beautiful weather and scenery aren’t enough to justify the nonsense, even for people who can afford it. And there’s little hope for a course correction given that, as the PPIC notes, “conservatives are more likely to contemplate leaving the state than liberals.”

One of the top destinations for fleeing Californians is Washington, which is still slowly gaining population — in part because of its lack of a state income tax (and its spectacular scenery, of course). Yet that state is heading down California’s path. The governor was ecstatic after the state supreme court determined this month that a 2021 capital gains tax is not an income tax, even though it is a tax on income.

No wonder neighboring Idaho had the highest population growth in the nation at 2.88 percent. Just be sure to swap out those Washington and California license plates as soon as you move there, given that the exodus has made many locals rather surly.

Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

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