For many years, California has lost some taxpayers each year due to migration to other states. While in the past, outmigration tended to be more pronounced among lower-income Californians, in recent years the state has seen an increase in net outflows across all income brackets. Historically, upticks in outmigration have been associated with periods of rapid increases in cost of living.
Recently, the IRS released new data on taxpayer migration during the first year of the pandemic (2020). These data show that the state had a net outflow of about 260,000 taxpayers (0.8% of all taxpayers) in 2020, up from about 165,000 (0.5%) in 2019. The forgone state income tax collections associated with this net outmigration likely represent a bit over one percent of total state income tax revenues. This is about double the amount of forgone revenues associated with outmigration in 2019. While this uptick is notable, it is important to keep in mind that state income tax collections still grew an extraordinary 16 percent between 2020 and 2019.
The uptick in outmigration to other states is not the only story in the 2020 IRS data. The data also show a sizable increase of movement within California. In fact, the amount of income that moved between California counties in 2020 was roughly the same as the amount that moved between California and all other states. This movement followed a clear pattern: income shifted out of a handful of urban areas towards more rural parts of the state. Even though this was, to some degree, an intensification of an existing trend, it remains to be seen whether this pattern will endure or whether it was an oddity of the pandemic.