The Blue-State Wealth Exodus Continues

The latest IRS data shows that the migration of taxpayers to GOP-run states from the left coasts and Illinois continued in 2022

WSJ editorial. 

"The pandemic lockdowns accelerated flight from Democratic-run states with onerous taxes and a high cost of living. The latest data from the Internal Revenue Service shows that the exodus has continued after life got back to quasi-normal. 

The IRS last week published its annual data on the migration of taxpayers and adjusted gross income (AGI) between states. California ranked, again, as the biggest income loser ($23.8 billion) in 2022, followed by New York ($14.2 billion), Illinois ($9.8 billion), New Jersey ($5.3 billion) and Massachusetts ($3.9 billion). The top gainers were Florida ($36 billion), Texas ($10.1 billion), South Carolina ($4.8 billion), Tennessee ($4.7 billion) and North Carolina ($4.6 billion).

Although higher interest rates and housing prices reduced mobility in 2022, the flight from progressive states far surpassed pre-pandemic levels. California lost nearly three times as much income in 2022 to other states as it did in 2019. New Jersey’s net income loss hit a record in 2022, largely owing to fewer New Yorkers moving across the Hudson River.

Fewer taxpayers left the Empire State in 2022 than during the pandemic, but its income loss was still about 50% higher (unadjusted for inflation) than in 2019. According to an analysis by Wirepoints, New York lost 1.8% in AGI from out-migration in 2022, 3.1% in 2021 and 2.5% in 2020. That’s a lot of taxable income.

On the other hand, Florida gained about twice as much income in 2022 from other states as it did in 2019, while Texas’s income haul surged by more than 150%. Other Republican-led states such as South Carolina and Tennessee also continued to draw more income from other states than before the pandemic, even after adjusting for inflation.

California Gov. Gavin Newsom assails these states as cultural backwaters. Yet California lost income in 2022 to most Republican-led states, including Texas ($5.4 billion), Florida ($2.9 billion), Tennessee ($1.5 billion), Utah ($940 million), South Carolina ($370 million) and Alabama ($140 million). Why are so many fleeing the Golden State?

Blame in part its high energy and housing costs. Electricity costs two to three times as much, and gasoline $1 to $2 a gallon more, as in states without burdensome climate mandates. California’s median-priced home ($860,500) is double that of most states owing to a housing shortage caused by zoning restrictions and environmental laws.

Mr. Newsom hailed the “California dream” in his State of the State speech last week, but its crime and vagrancy are a nightmare. Buying a home is becoming harder for young people in California. The Governor also claimed red states “tax their lowest earners far more than California does.” And he calls Donald Trump a liar?

California’s gas taxes are the highest in the country. It taxes middle-income earners at a higher top marginal rate (9.3% at $68,350) than most states do millionaires. Texas and Florida have no income tax. Sales taxes in most GOP-led states are also lower than in California. As are property taxes because home prices are lower.

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If a business lost customers year after year, it might reduce prices or improve service. Not progressive states. California is ramping up its climate mandates and stealth taxes, which will drive energy costs higher. Restaurants are raising prices after a new $20 an hour minimum wage for fast-food workers took effect in April.

Democrats in New Jersey last month reimposed a 2.5% surtax on corporate income that a year ago Gov. Phil Murphy had boasted about letting expire. Illinois Democrats recently enacted a budget with $1.1 billion in tax increases, including a cap on net operating losses for businesses. Any surprise that jobs, wages and business income are growing more slowly in these states?

The Bureau of Economic Analysis last week released data that shows annual growth in proprietors’ income since the start of the pandemic has lagged the rate of inflation in California (1.6%), New York (1.2%), New Jersey (0.3%) and Illinois (-0.6%). Business income has grown significantly faster in Texas (4.1%), Florida (7.6%) and Tennessee (8.5%). So have wages and jobs.

Employment in California, New York and Illinois hasn’t recovered to pre-pandemic levels. California has about 400,557 fewer workers than in January 2020 while Florida boasts 669,806 more. Taxpayer flight and slower economic growth result in less tax revenue. Democrats then raise taxes to pay for their growing welfare programs and promises to public unions. Rinse and repeat.

Mr. Newsom sued last year to block a voter initiative that would have made it harder for Democrats to raise taxes. He won, but that means most people outside of Sacramento lost. If Americans living in incorrigibly progressive states want change, they will have to vote with their feet and wallets."