California Unexpectedly Hit by Bad Luck As Top Wealth Producers Flee the State

“Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty. 
This is known as “bad luck.” 
― Robert Heinlein

After nearly two centuries of uninterrupted economic and population growth, California has hit a pothole in the road. There had been a lot of warning signs that the Democrats’ hostility to success and achievement was coming home to roost but the first finite, undeniable warning was when California lost a House seat in the 2020 reapportionment. This was the first time in history that California had lost a House seat and marked the end of a run of gains that started with a one-seat gain in the 1860 Census and culminated in a series of 5-7 seat gains between 1910 and 1980. My colleague Ward Clark has more to say about the population shift, particularly the addition of over a hundred thousand low-skill/no-skill immigrants; see The Exodus of Productive Citizens From California Proceeds Apace.

According to the LA Times, the pain is beginning to be felt as the outflow of high-earners (and maximum tax rate payers) is replaced by an inflow of people dependent upon public services.

Even though California has experienced lopsided out-migration for decades, the financial blow has been cushioned by the kinds of people moving into the state: The newcomers were generally better educated and earned more money than those who left.
Not now: That long-standing trend has reversed. New state-to-state migration data show that for several years, thousands more high-earning, well-educated workers have left California than have moved in.
The reversal, largely in response to the state’s high taxes and soaring cost of living, has begun to damage California’s overall economy. And, by cutting into tax revenues, has delivered punishing blows to state and local governments.
State budget analysts recently projected a record $68-billion deficit in the next fiscal year because of a 25% drop in personal income tax collection in 2023. Some city, county and other local taxing authorities, particularly in the San Francisco Bay Area, have also recorded revenue declines.

According to the same budget analysts, the top one percent of California taxpayers, that is, those earning more than a million dollars per year, account for as much as 45 percent of state income tax revenue. By extension, one can assume they also pay a disproportionate share of property taxes, too.

What California seems to be doing is swapping a lot of people earning good money for not a lot of people who earn less.

IRS and other data show that Texas has long been, by far, the top destination for Californians. And in the years 2015-16, an individual or couple who had moved from California to Texas reported an average income of $78,000, about the same as Texans who relocated to California. But by 2020-21, California transplants in Texas reported an average income of about $137,000, while tax returns from former Texans who moved to California showed an average income of $75,000.

Some are under the illusion that the outflow is wealthy retirees. That isn’t the case. Yes, large numbers of wealthy retirees are leaving the state but the bleed is from the core of the workforce.

Moody’s Analytics economist Mark Zandi analyzed moves in and out of California for The Times using Equifax credit data, to zero in on the age of the movers. He found that since the pandemic in early 2020, California has lost residents in every age group, but by a significant margin the biggest net out-migration came from those 35 to 44 years old.

Unless California takes action to put things right, it will be very similar to this scene from Margin Call.

California has created a government that depends on one percent of its citizens for 50 percent of its revenue. It is in the process of creating a situation where it has half the revenue and 99 percent of the people. That is not sustainable.


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