As we ease into the end of the year, it is a time to reflect on the major trends of the year and assess what they mean for the future. The elephant in the California room is out-migration, particularly of the people who foot the California tab which is large and growing. We touched on it in July of 2020 here. And again in October of 2022 here. So none of this is news–the news is what little Newsom and the Legislature are doing about it.
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.
California is heavily dependent on high earners to meet government fiscal needs. Tax filers in the top 1% of income, earning around $1 million and above, have typically accounted for 40% to 45% of the state’s total personal income tax revenue, said Brian Uhler, deputy legislative analyst at California’s Legislative Analyst’s Office, which estimated the $68-billion budget deficit.
Moody’s Analytics economist Mark Zandi analyzed moves in and out of California for The LA 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.
Pundits on the Left AND the Right (looking at you WSJ) point to restrictive building codes as a key factor, but I think it is way down the list. In fact, I'll bet a lot of departures are due to the reverse–over-development and all the quality of life problems it brings. Or the sense that your single-family neighborhood is threatened by the Yes In Your Backyard crew–YIYBYs. Right behind that are the oppressive taxes on the high earners and the little tricks being played like the Death Tax that slipped through last election. Pile on the singularly stupid things like fining stores if they don't have a "gender-neutral" toy section or outlawing gas stoves that causes ridicule from friends all over the country and you have a Perfect Storm.
As I said three and a half years ago on the first linked post, this is not likely to change any time soon. There maybe a Black Swan event at some point but they are intrinsically unpredicted. All we can do it keep talking/posting about it and hope the politicians wake up to reality. When the effects of the bad policies noted here finally come home to roost, it may be too late.
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