New York and California lost over $90 billion in income to low-tax states during Covid

New York and California lost over $90 billion in income during Covid as taxpayers moved to other states, accelerating the trend of high-earners relocating to lower-tax areas.

New data from the Internal Revenue Service shows that New York state lost $25 billion in adjusted gross income due to outmigration in 2021, on top of $20 billion lost in 2020. California reported a net loss of $29 billion in 2021, following a loss of $18 billion in 2020. Combined, the two states lost $92 billion across the two years.

The data shows that the income flight from high-tax states to low-tax states, which has been happening for years, picked up steam during Covid. The income losses for California and New York in 2021 were more than three-times their combined losses in 2019, before the pandemic took hold in the U.S.

Experts say that while the income migration from states likely slowed in 2022 and 2023 from the pandemic highs, higher-tax states will continue to see outflows of high earners, thanks in part to remote work and white-collar job growth in the sun belt.

“When we get the data for 2021-22 and 2023, the outflow is certain to have slowed to some extent,” said E.J. McMahon, founding senior fellow at the Empire Center, “which does not in my view, mean migration will have ceased to be a problem.”

The biggest winner in the migration has been Florida: The Sunshine State gained a net 128,000 households in 2021, bringing over $39 billion in income, according to the IRS data, a huge jump from the $28 billion gained by the state in 2020. Palm Beach County, which includes the exclusive town of Palm Beach, gained over $11 billion in income alone in 2021, according to the IRS.

Nearly a third of Florida’s gain — or about $10 billion — came from New York. California, Illinois and New Jersey each lost over $4 billion in income to Florida in 2021. The income gains are rippling through the Florida economy, with a recent Bureau of Labor Statistics report showing Florida with more total jobs than New York since the Bureau started tracking the numbers in 1982.

Texas was also a winner, adding $11 billion in income. California’s loss was largely Texas’ gain, with over $5 billion moving from California to Texas.

Other winners included Nevada, North Carolina and Arizona, which gained about $14 billion in income combined.

The losses in the high-tax states also tended to be higher earners, which will have an outsized impact on tax collections over time. The average income of the households leaving New York reached an all-time high of $130,000 in 2021. The average income of New Yorkers moving to Florida was even higher, at $223,245 — a 64% jump from the average income of those who moved out between 2019 and 2020, according to McMahon.

A number of super-earners, like hedge fund executives and private equity chiefs, also moved to Florida during the pandemic. Those groups tend to be among the largest single taxpayers in New York, New Jersey and Connecticut.

Many Democrats say the income flight is overstated, since the number of millionaires in New York and California remains at or near all-time highs. They say that as federal aid winds down and tax revenue starts to decline, states should raise taxes on the wealthy.

New York legislators battled last month for a tax increase on New Yorkers earning more than $5 million a year, yet Gov. Kathy Hochul blocked the move.

Both California and New York, which had budget surpluses in 2022, are now projecting deficits in 2023 and 2024. California is projecting a deficit of $24 billion in the next fiscal year. New York is projecting a deficit of over $7 billion by 2025.

“If we’re seeing an increased outflow of very high earners — and we are — it inevitably means the tax base is smaller than it would otherwise be,” McMahon said.