Why People Are Fleeing California (and Some Other States)

Why People Are Fleeing California (and Some Other States)

By Mark Nestmann • February 16, 2021

We recently discovered a study analyzing migration patterns within the United States over the course of 2020.

Take California, for instance, America’s most populous state. Starting with the Gold Rush in 1848, people from other states and countries moved there by the millions. That remained the case during the millennium’s first decade, when California’s population continued growing, from 33.6 million in 2000 to 37.3 million in 2010. But in 2011, that upward trend had begun to shift and by 2013, 53 people were leaving the state for every 47 arriving. The exodus accelerated as the decade progressed, so that by 2019, nearly twice as many people departed California as moved there.

New Jersey has followed a similar pattern. Its population was 8.2 million in 2000 and increased to 8.7 million by 2010. But at a remarkably steady rate over the last decade, twice as many people have left New Jersey than have moved into the Garden State. 

Other states whose populations have fallen sharply in the last decade include Illinois, Maryland, Michigan, New York, and Pennsylvania. The study linked at the beginning of this week’s Notes makes it clear: Americans are leaving the Northeast and Midwest for the warmer South. Arizona, Texas, and Tennessee are three states that have become popular relocation destinations in recent years.

Still, it’s not just about the weather. Idaho, where winter temperatures routinely fall below zero Fahrenheit, has been the most popular relocation choice for domestic migrants since 2018. Chilly Colorado is also a popular choice. Yet Anaheim and San Diego, cities with near-perfect weather for most of the year, are both losing their population almost as fast as New York City is.

Nor are these migration patterns as simple as concluding that Americans are deserting high-tax, high-regulation “blue” states and settling in lower-tax, lower-regulation “red” states. Although, taxes do play a significant role in peoples’ decisions to relocate, especially if they’re wealthy or own businesses.

Instead, relocation is a package deal. I live in Phoenix, Arizona, the fastest-growing city in the United States. Recently, I was chatting with a 30-something real estate agent who relocated here from Southern California a few months ago.

I asked her why she left “the Golden State.” She said her breaking point came last September when California was in the midst of its worst fire season on record. It was impossible to keep the smell of smoke out of her home and breathing the outdoor air was excruciating.

Digging a bit deeper, I asked if there were any political considerations that drove her from California to Arizona. She told me there weren’t any; indeed, she described herself as “left-leaning” and felt much more at home in California’s liberal political environment than in Arizona’s more conservative surroundings. Then she smiled and added that shortly after arriving in Arizona, she purchased her first gun and enrolled in a firearms safety class. “Maybe I’m not as liberal as I thought,” she laughed.

Still, California hasn’t done itself any favors in its continuing campaign of political “wokeness.” In response to the police killing of George Floyd in Minneapolis, Los Angeles mayor Eric Garcetti announced plans to defund the police – an idea praised by then Senator and now Vice-President Kamala Harris. The entire state has become a sanctuary for undocumented immigrants, who are offered access to driver’s licenses and free health care.

Meanwhile, California expects tax revenues to decline by $32 billion in 2021. Thus, state legislators have proposed a wealth tax that would apply to anyone with a net worth of $15 million or more ($30 million if you file taxes jointly with your spouse). The tax would be 0.4% of your net worth, payable annually. California also has you covered if you only spend part of the year in the state by charging a pro-rated tax based on how long you spend there each year.

And if you want to leave California? The state has an answer to that as well: an exit tax. Indeed, it’s a key part of their wealth tax proposal. If you flee California, you’ll need to pay the surcharge over the next ten years, for a total 1.80% exit tax. That may not sound like much, but the current rates can always be increased (and the threshold required to pay it reduced) to meet revenue needs.

To be clear, I love visiting California and don’t even mind its political correctness (especially since I don’t live there). But we’re seeing the same pattern in most of the states experiencing big population outflows:

  • New Jersey just enacted a “millionaire’s tax” that will hike state income taxes to 10.75% on anyone who earns more than $1 million annually.

  • In New York, Governor Andrew Cuomo proposes raising taxes for the wealthiest residents of the state to a top rate of 10.86%, up from 8.82%.

  • Illinois governor Jay Pritzker lost his bid to hit state small businesses with a $500 million tax hike last month, but the proposal is expected to come up again in March.

The shenanigans in these and other states will have a longstanding impact once the results of the 2020 census are announced and the 435 seats in the House of Representatives are reapportioned. For the first time in its history, California will likely lose at least one congressional seat. Illinois will lose one seat, and New York will probably lose two.

Are you considering relocating to another state? If you are, you might be interested in reviewing a survey we prepared in 2020 for members of the Nestmann Inner Circle Gold on the best states for retirement. Not simply focused on tax, the report also covers the best states for protecting the equity in your home, and your pension benefits. To try a risk-free trial subscription to this service, follow this link.

Protecting your assets (and yourself) against any threat - from the government, the IRS or a frivolous lawsuit - is something The Nestmann Group has helped more than 15,000 Americans do over the last 30 years.

Feel free to get in touch at service@nestmann.com or call +1 (602) 688-7552 to learn how we can help you.

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About The Author

Since 1990, Mark Nestmann has helped thousands of clients seeking wealth preservation and international tax planning solutions. He is the author of highly acclaimed Lifeboat Strategy and other books & reports dealing with these subjects.

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